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Understanding why high income households save more than low income households

Author

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  • Mark Huggett
  • Gustavo Ventura

Abstract

This paper investigates why high income households in the United States save on average more than low income households in cross-section data. The three explanations considered are (1) age differences across households, (2) temporary earnings shocks, and (3) the structure of transfer payments. We use a calibrated life-cycle model to evaluate the quantitative importance of these explanations and find that age and the structure of transfers are quantitatively important in producing the cross-section pattern of United States savings rates. Temporary shocks are of secondary importance.

Suggested Citation

  • Mark Huggett & Gustavo Ventura, 1995. "Understanding why high income households save more than low income households," Discussion Paper / Institute for Empirical Macroeconomics 106, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmem:106
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    JEL classification:

    • D3 - Microeconomics - - Distribution
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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