Effects of Aspirations and Habits on the Distribution of Wealth

32 Pages Posted: 23 Sep 2014

See all articles by Jordi Caballé

Jordi Caballé

Universitat Autonoma de Barcelona; Barcelona Graduate School of Economics (Barcelona GSE)

Ana I. Moro‐Egido

University of Granada

Date Written: October 2014

Abstract

We analyze how the introduction of habits and aspirations affects the distribution of wealth when the labor productivity of individuals is subject to idiosyncratic shocks and when bequests arise from a joy‐of‐giving motive. In the presence of either bequests or aspirations, labor income shocks are transmitted intergenerationally, and this transmission, together with contemporaneous shocks, determines the distribution of wealth. We show that the introduction of aspirations (habits) decreases (increases) the average wealth, and increases (decreases) both its intragenerational variability and the degree of intergenerational mobility. Therefore, a distinction between aspirations and habits is relevant because they involve different implications for the distribution of wealth.

Keywords: Bequests, mobility, variability

JEL Classification: D31, E21, E62

Suggested Citation

Caballe Vilella, Jordi and Moro‐Egido, Ana I., Effects of Aspirations and Habits on the Distribution of Wealth (October 2014). The Scandinavian Journal of Economics, Vol. 116, Issue 4, pp. 1012-1043, 2014. Available at SSRN: https://ssrn.com/abstract=2499937 or http://dx.doi.org/10.1111/sjoe.12069

Jordi Caballe Vilella (Contact Author)

Universitat Autonoma de Barcelona ( email )

Dept. d'Economia i Historia Economica
Edifici B
Bellaterra, Barcelona 08193
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Ana I. Moro‐Egido

University of Granada

C/Rector López Argueta S/N
Granada, 18071
Spain

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