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Income, Savings, and Wealth

Paper Session

Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM

Marriott Philadelphia Downtown, Meeting Room 306
Hosted By: American Economic Association
  • Chair: Eric Olson, West Virginia University

Income and Wealth Inequality in America, 1949-2013

Moritz Kuhn
University of Bonn
Moritz Schularick
University of Bonn
Ulrike Isabel Steins
University of Bonn


Relying on newly coded data from historical waves of the Survey of Consumer Finances
(SCF) going back to 1949, this paper studies the distribution of U.S. household income
and wealth over seven decades of U.S. postwar history. The new micro-level data allow
us to address central questions about the evolution of income and wealth inequality
that have been beyond reach with existing data and methods. We provide new evidence
for the evolution of income and wealth inequality among the bottom 90% of
households. We document how increasing income and wealth concentration at the top
was accompanied by a hollowing out of the middle class. The historical household surveys
also make it possible to study trends in income and wealth concentration jointly.
We show that income inequality rose earlier and more strongly than wealth inequality.
Differences in household portfolios and leverage play the central role for the observed
divergence of income and wealth inequality.

Saving and Dissaving with Hyperbolic Discounting

Dan Vu Cao
Georgetown University
Ivan Werning
Massachusetts Institute of Technology


Is the standard hyperbolic-discounting model capable of robust qualitative predictions for savings behavior? Despite results suggesting a negative answer, we provide a positive one. We give conditions under which all Markov equilibria display either saving at all wealth levels or dissaving at all wealth levels. Moreover, saving versus dissaving is determined by a simple condition comparing the interest rate to a threshold made up of impatience parameters only. Our robustness results illustrate a well-behaved side of the model and imply that qualitative behavior is determinate, dissipating indeterminacy concerns to the contrary (Krusell and Smith, 2003). We prove by construction that equilibria always exist and that multiplicity is present in some cases, so that robust predictions are possible despite multiplicity. Similar results should apply to other dynamic games, such as political economy models of public spending.

Credit and Saving Constraints in General Equilibrium: Evidence From Survey Data

Catalina Granda Carvajal
University of Antioquia
Franz Hamann
Bank of Republic of Colombia
Cesar E. Tamayo
Inter-American Development Bank


In this paper, we build a heterogeneous agents-dynamic general equilibrium model wherein saving constraints interact with credit constraints. Saving constraints in the form of fixed costs to use the financial system lead households to seek informal saving instruments (cash) and result in lower aggregate saving. Credit constraints induce misallocation of capital across producers that in turn lowers output, productivity, and the return to formal financial instruments. We calibrate the model using survey data from a developing country where informal saving and credit constraints are pervasive. Our quantitative results suggest that completely removing saving and credit constraints can have large effects on saving rates, output, TFP and welfare. Moreover, we note that a sizable fraction of these gains can be more easily attained by a mix of moderate reforms that lower both types of frictions than by a strong reform on either front.

Forced Retirement Risk and Portfolio Choice

Guodong Chen
New York University Shanghai
Minjoon Lee
Carleton University
Tong-yob Nam
Office of the Comptroller of the Currency


Literature on the effect of labor income on portfolio choice fails to consider that workers face the risk of being forced to retire before their planned retirement age. Using data from the Health and Retirement Studies (HRS), this paper finds such a forced retirement risk to be significant and also highly correlated with stock market fluctuations. A life-cycle portfolio choice model with the estimated forced retirement risk shows that labor income subjects to such a risk becomes stock-like as individuals approach their retirement. Therefore, contrary to conventional wisdom, those who are still working but close to retirement should have lower share of risky assets in their financial portfolios than retirees do. Given that most of financial assets are held by middle-aged households, this finding gives an alternative explanation to the risk premium puzzle.
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy