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Understanding Differences in Household Financial Wealth between the United States and Great Britain

  • James Banks

    (Institute for Fiscal Studies & University College, London)

  • Richard Blundell

    (Institute for Fiscal Studies & University College, London)

  • James P. Smith

    (RAND)

In this paper, we describe the household wealth distribution in the United States and United Kingdom over the past two decades, and compare both wealth inequality and the form in which wealth is held. Unconditionally, there are large differences in financial wealth between the two countries at the top fifth of the wealth distribution. Even after controlling for age and income differences between the two countries, we show that the median U.S. household accumulates more financial wealth than their United Kingdom counterpart does. We explore a number of alternative reasons for these differences and reject some explanations as implausible. Some of the observed differences are due to what we refer to as 'initial conditions,' in particular previously high rates of corporate equity ownership in the U.S. and housing ownership among young British households. This only provides a partial explanation, however. Among other explanations are differences in the annuitization of retirement incomes and in the amount of wealth held in the form of housing equity. In the first case, forced and voluntary annuitization in the United Kingdom mean older households face considerably less longevity risk. In the second, higher house price volatility in the United Kingdom can create an incentive, as shown in Banks, Blundell, and Smith (2002), away from stock market equity earlier in the life cycle.

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File URL: http://econwpa.repec.org/eps/lab/papers/0403/0403028.pdf
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Paper provided by EconWPA in its series Labor and Demography with number 0403028.

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Length: 40 pages
Date of creation: 17 Mar 2004
Date of revision:
Handle: RePEc:wpa:wuwpla:0403028
Note: Type of Document - pdf; pages: 40. Journal of Human Resources, Volume 38, Number 2, Spring 2003, pp. 241-279
Contact details of provider: Web page: http://econwpa.repec.org

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  1. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 1997. "What Accounts for the Variation in Retirement Wealth Among U.S. Households?," NBER Working Papers 6227, National Bureau of Economic Research, Inc.
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  3. Simon Burgess & Karen Gardiner & Stephen P. Jenkins & Carol Propper, 2000. "Measuring income risk," LSE Research Online Documents on Economics 6450, London School of Economics and Political Science, LSE Library.
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  11. James Banks & Richard Blundell, 1994. "Household Saving Behavior in the United Kingdom," NBER Chapters, in: International Comparisons of Household Saving, pages 169-206 National Bureau of Economic Research, Inc.
  12. Attanasio, Orazio P & Weber, Guglielmo, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 631-49, July.
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