Arbeitspapier

Savings externalities and wealth inequality

Incomplete markets models imply heterogeneous household savings behaviour which in turn generates pecuniary externalities via the interest rate. Conditional on differences in the processes determining household earnings for distinct groups in the population, these savings externalities may contribute to inequality. Working with an open economy heterogenous agent model, where the interest rate only partially responds to domestic asset supply, we find that differences in the earnings processes of British households with university and non-university educated heads entail savings externalities that increase wealth inequality between the groups and within the group of the non-university educated households. We further find that while the inefficiency effects of these externalities are quantitatively small, the distributional effects are sizeable.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 7619

Classification
Wirtschaft
Macroeconomics: Consumption; Saving; Wealth
Aggregate Factor Income Distribution
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Subject
incomplete markets
productivity differences
savings externalities

Event
Geistige Schöpfung
(who)
Angelopoulos, Konstantinos
Lazarakis, Spyridon
Malley, Jim
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
2019

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Angelopoulos, Konstantinos
  • Lazarakis, Spyridon
  • Malley, Jim
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2019

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