From Saving Comes Having? Disentangling the Impact of Saving on Wealth Inequality

Abstract

This paper investigates the channels through which saving flows impact the dynamics of wealth inequality. The analysis relies on an administrative panel that reports the assets and income of every Swedish resident at the yearly frequency. We document that the saving rate, defined as saving from labor income divided by net worth, is on average a decreasing function of net worth itself. The saving rate is also highly heterogeneous within net worth brackets. Heterogeneity across and within net worth brackets have conflicting effects on wealth inequality. As a result, saving rate heterogeneity is measured to have a strong impact on social mobility but only a weak impact on the distribution of net worth. Heterogeneity in wealth return is instead the main driver of the recent increase in top wealth shares.

Keywords: Household finance, inequality, saving, consumption, income-to-wealth ratio

JEL Classification: D14, D91, E21, G11