Elsevier

Review of Economic Dynamics

Volume 26, October 2017, Pages 280-300
Review of Economic Dynamics

Saving and wealth inequality

https://doi.org/10.1016/j.red.2017.06.002Get rights and content
Under a Creative Commons license
open access

Highlights

  • Why are some people wealthy while others are poor? Can governments affect inequality? Which instruments should they use?

  • Answering these questions requires understanding why people save.

  • This paper surveys the most empirically relevant savings mechanisms proposed so far.

  • It concludes that the transmission of bequests and human capital, entrepreneurship, and medical-expense risk are crucial.

  • We need to look at more data to measure their relative importance.

Abstract

Why are some people wealthy while others are poor? To what extent can governments affect inequality? Which instruments should they use? Answering these questions requires understanding why people save. Dynamic quantitative models of wealth inequality can help us to understand and quantify the determinants of the outcomes that we observe in the data and to evaluate the consequences of policy reform. This paper surveys the savings mechanisms generated by the transmission of bequests and human capital, by preference heterogeneity, by rate of return heterogeneity, by entrepreneurship, by richer earnings processes, and by medical expenses. It concludes that the transmission of bequests and human capital, entrepreneurship, and medical-expense risk are crucial determinants of savings and wealth inequality and that we need to look at more data to measure their relative importance.

JEL classification

D14
D31
E21

Keywords

Inequality
Saving
Wealth

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