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|Title:||Why do the Rich Save More? A Theory and Australian Evidence|
|Publisher:||Department of Economics|
|Abstract:||We provide a theory to explain the existence of inequality in an economy where agents have identical preferences and have access to the same production technology. Agents consume a “utility” good and a “health” good which determines their subjective discount factor. Depending on initial distribution of capital the economy gets separated into different permanent-income groups. This leads to a testable hypothesis: “The rich save a larger proportion of their permanent income”. We test this implication for the savings behaviour in Australia. We show that even after controlling for life-cycle characteristics permanent income and savings are positively correlated. An improvement in the health leads to a positive effect on savings behaviour.|
|ISBN:||1 86487 843 6|
|Appears in Collections:||Working Papers - Economics|
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