Time Discounting and Wealth Inequality
AbstractThis paper documents a large association between individuals' time discounting in incentivized experiments and their positions in the real-life wealth distribution derived from Danish high-quality administrative data for a large sample of middle-aged individuals. The association is stable over time, exists through the wealth distribution and remains large after controlling for education, income profile, school grades, initial wealth, parental wealth, credit constraints, demographics, risk preferences, and additional behavioral parameters. Our results suggest that savings behavior is a driver of the observed association between patience and wealth inequality as predicted by standard savings theory.
CitationEpper, Thomas, Ernst Fehr, Helga Fehr-Duda, Claus Thustrup Kreiner, David Dreyer Lassen, Søren Leth-Petersen, and Gregers Nytoft Rasmussen. 2020. "Time Discounting and Wealth Inequality." American Economic Review, 110 (4): 1177-1205. DOI: 10.1257/aer.20181096
- C91 Design of Experiments: Laboratory, Individual
- D15 Intertemporal Household Choice; Life Cycle Models and Saving
- D31 Personal Income, Wealth, and Their Distributions
- E21 Macroeconomics: Consumption; Saving; Wealth