Working Paper: NBER ID: w2842
Authors: Jonathan Skinner
Abstract: The recent appreciation in housing value can have large effects on aggregate saving. This paper uses a simulation model to show that aggregate saving will decline substantially if life cycle homeowners spend down their housing windfalls. Homeowners with a bequest motive, however, may save more to assist their children in buying the now more expensive housing. To test whether families spend their housing capital gains, I use housing, income, and consumption data from the Panel Study of Income Dynamics. While a cross-section time-series regression implies that housing wealth does affect saving, a fixed-effects model finds no effect.
Keywords: Housing Wealth; Aggregate Saving; Capital Gains; Consumption; Bequest Motive
JEL Codes: D91; E21; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bequest Motives (D64) | Saving (E21) |
| Housing Price Appreciation (R31) | Consumption (E21) |
| Housing Price Appreciation (R31) | Aggregate Saving (C43) |
| Housing Wealth (G51) | Saving (E21) |
| Housing Prices (R31) | Consumption (E21) |
| Housing Prices (R31) | Saving (E21) |