Heterogeneous Saving Behavior and Permanent Income. Raya-Munté, A. November 2021. Unpublished manuscript![Heterogeneous Saving Behavior and Permanent Income [link]](https://bibbase.org/img/filetypes/link.svg "link")
Link abstract bibtex 2 downloads Do high permanent income households tend to accumulate a larger amount of wealth relative to income over the life cycle? Using Spanish household-level panel data from the Survey of Household Finances, I estimate permanent income for each household and document a positive and strong relationship between the latter and wealth-to-income ratios over the life cycle. In particular, the median household in the 8th decile and above of the permanent income distribution tends to exhibit wealth-to-income ratios at least 50% larger than the median household in the 2nd decile. To study the determinants of this nonhomothetic behavior, I build a standard partial equilibrium life-cycle model of homothetic household consumption and saving behavior which, by construction, features homogeneous wealth accumulation relative to income. This serves as a benchmark to help investigate the quantitative contribution of different sources of non-homothetic behavior: the pension system, accidental and voluntary bequests, intergenerational transmission of ability, and preference heterogeneity. A calibrated version of this model for Spain shows that nonhomotheticities stemming from the pension system and the transmission of wealth via bequests account, on average, for 70% of documented wealth-to-income ratios differences. However, these sources are not able to account for the large amount of wealth - relative to income - the top 20% of households accumulate. To this end, the model calibration approach requires a sizable amount of preference heterogeneity at the top of the permanent income distribution.
@unpublished{Raya-Munte2021,
title = {Heterogeneous Saving Behavior and Permanent Income},
author = {{Raya-Munt{\'e}}, Albert},
year = {2021},
month = nov,
url = {https://www.albertrayamunte.com/research.html},
urldate = {2022-02-23},
abstract = {Do high permanent income households tend to accumulate a larger amount of wealth relative to income over the life cycle? Using Spanish household-level panel data from the Survey of Household Finances, I estimate permanent income for each household and document a positive and strong relationship between the latter and wealth-to-income ratios over the life cycle. In particular, the median household in the 8th decile and above of the permanent income distribution tends to exhibit wealth-to-income ratios at least 50\% larger than the median household in the 2nd decile. To study the determinants of this nonhomothetic behavior, I build a standard partial equilibrium life-cycle model of homothetic household consumption and saving behavior which, by construction, features homogeneous wealth accumulation relative to income. This serves as a benchmark to help investigate the quantitative contribution of different sources of non-homothetic behavior: the pension system, accidental and voluntary bequests, intergenerational transmission of ability, and preference heterogeneity. A calibrated version of this model for Spain shows that nonhomotheticities stemming from the pension system and the transmission of wealth via bequests account, on average, for 70\% of documented wealth-to-income ratios differences. However, these sources are not able to account for the large amount of wealth - relative to income - the top 20\% of households accumulate. To this end, the model calibration approach requires a sizable amount of preference heterogeneity at the top of the permanent income distribution.},
keywords = {Determinants of Wealth and Wealth Inequality,Intergenerational Wealth},
note = {Unpublished manuscript}
}
Downloads: 2
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