Working Paper: NBER ID: w21106
Authors: Mariacristina De Nardi
Abstract: While in the data wealth is concentrated in the hands of a small number of rich people and the saving rate of the rich is high, many models used for quantitative policy evaluation fail to match these facts. In addition, some of the models that succeed in matching these facts have radically different policy implications, depending on the nature and strength of the saving motives assumed. This paper surveys the savings mechanisms proposed so far (preference heterogeneity, transmission of bequests and human capital across generations, entrepreneurship, and high earnings risk for the top earners) and argues that more work is needed to understand wealth inequality and the saving motives behind it, and to evaluate policy more reliably.
Keywords: No keywords provided
JEL Codes: D14; D31; E21; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inadequacy of the basic Bewley model (D52) | Underestimation of wealth concentration (D31) |
| Precautionary savings assumption (D14) | Negative saving rate for wealthy individuals (D14) |
| High saving rates of the wealthy (D14) | Need for mechanisms like preference heterogeneity, bequest transmission, and entrepreneurship (D15) |
| Different motives for saving (D14) | Different implications for wealth inequality (D31) |
| Understanding mechanisms (C99) | Evaluating policy implications (D78) |