Income and Wealth Distribution in Macroeconomics
Sunday, Jan. 6, 2019 10:15 AM - 12:15 PM
- Chair: Benjamin Moll, Princeton University
Saving Behavior Across the Wealth Distribution
AbstractDo wealthier households save a larger share of their incomes than poorer ones? We use Norwegian administrative panel data on income and wealth to examine how saving rates vary across the wealth distribution. We compare our findings to the prediction of workhorse macro models that saving rates are either independent of or decreasing with wealth. We find that the relation between saving rates and wealth depends on whether saving includes capital gains. Saving rates net of capital gains ("net saving rates") are approximately constant across the wealth distribution, seemingly consistent with workhorse models. However, saving rates including capital gains ("gross saving rates") increase markedly with wealth. Since the predictions of economic theories are about gross saving, our findings challenge workhorse models with approximately constant saving rates. In contrast, our empirical findings are consistent with a theory featuring multiple assets and portfolio adjustment frictions.
Income Volatility and Portfolio Choices
AbstractUsing a detailed household-level financial and labor-market panel data from Statistics Norway, we examine the effect of structural breaks in the labor market on household's portfolio decisions. Individual structural breaks are identified by sharp changes in the volatility of labor income. We find a clear negative relationship between the volatility in the labor market and household's risky share. According to our estimates, a worker who experiences a 33% increase in income volatility decreases the risky share by 4.4 percentage point. We try to reconcile the facts and interpret the implications in a life-cycle model with portfolio choices.
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- D3 - Distribution