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Top Incomes and National Savings

  • Andrew Leigh
  • Alberto Posso

The relationship between income inequality and national savings is theoretically ambiguous, and past empirical studies have delivered mixed results. We revisit the question using a newly available source of data on inequality: the income share of the richest 10 percent and the richest 1 percent. Combining this with historical data on national savings rates, we are able to investigate the relationship for eleven developed countries over the period 1921-2002. We find no consistent relationship between lagged top income shares and current savings rates, and our standard errors are small enough that we are able to reject more than modest effects in either direction. We view this as suggesting that inequality at the top end of the distribution is not a major driver of national savings rates.

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File URL: https://www.cbe.anu.edu.au/researchpapers/cepr/DP588.pdf
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Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 588.

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Date of creation: Oct 2008
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Handle: RePEc:auu:dpaper:588
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