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Understanding Why High Income Households Save More Than Low Income Households

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Author Info
Mark Huggett (Economics Department, University of Illinois)
Gustavo Ventura (Department of Economics, University of Illinois)

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Abstract

This paper investigates why high income households save on average a higher fraction of income than do low income households in US cross-section data. The three explanations considered are (1) age differences across households, (2) temporary earnings shocks and (3) the structure of social security payments. We use a calibrated life-cycle model to evaluate the quantitative importance of these explanations. We find that age and the structure of social security payments are quantitatively important in replicating the pattern of average savings rates and income found in US cross-section data. Surprisingly, temporary shocks turn out to be of secondary importance.

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Publisher Info
Paper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 9701.

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Length: 40 pages
Date of creation: Jan 1997
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Handle: RePEc:cie:wpaper:9701

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Keywords: Distribution Savings Life Cycle

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Find related papers by JEL classification:
D3 - Microeconomics - - Distribution
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

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