Time Discounting and Wealth Inequality

67 Pages Posted: 16 Oct 2019

See all articles by Thomas Epper

Thomas Epper

University of St. Gallen, School of Economics and Political Science

Ernst Fehr

University of Zurich - Department of Economics

Helga Fehr-Duda

ETH Zürich - Center for Economic Research

Claus Thustrup Kreiner

University of Copenhagen - Department of Economics

David Dreyer Lassen

University of Copenhagen

Søren Leth‐Petersen

University of Copenhagen - Department of Economics; Centre for Economic Policy Research (CEPR)

Gregers Nytoft Rasmussen

University of Copenhagen - Department of Economics

Date Written: September 2019

Abstract

This paper documents a large association between individuals’ time discounting in incentivized experiments and their positions in the real-life wealth distribution derived from Danish high-quality administrative data for a large sample of middle-aged individuals. The association is stable over time, exists through the wealth distribution and remains large after controlling for education, income profile, school grades, initial wealth, parental wealth, credit constraints, demographics, risk preferences and additional behavioral parameters. Our results suggest that savings behavior is a driver of the observed association between patience and wealth inequality as predicted by standard savings theory.

Keywords: Wealth inequality, savings behavior, time discounting, experimental methods, administrative data

JEL Classification: C91, D15, D31, E21

Suggested Citation

Epper, Thomas and Fehr, Ernst and Fehr-Duda, Helga and Kreiner, Claus Thustrup and Lassen, David Dreyer and Leth-Petersen, Soren and Rasmussen, Gregers Nytoft, Time Discounting and Wealth Inequality (September 2019). Available at SSRN: https://ssrn.com/abstract=3465413 or http://dx.doi.org/10.2139/ssrn.3465413

Thomas Epper

University of St. Gallen, School of Economics and Political Science ( email )

Varnbüelstrasse 19
St. Gallen, SG 9000
Switzerland

HOME PAGE: http://www.thomasepper.com

Ernst Fehr

University of Zurich - Department of Economics ( email )

Blümlisalpstrasse 10
Zuerich, 8006
Switzerland
+41 1 634 3709 (Phone)
+41 1 634 4907 (Fax)

Helga Fehr-Duda

ETH Zürich - Center for Economic Research ( email )

Weinbergstr. 35
Zurich 8092
Switzerland

Claus Thustrup Kreiner

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

David Dreyer Lassen

University of Copenhagen ( email )

Soren Leth-Petersen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Gregers Nytoft Rasmussen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

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