Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains

51 Pages Posted: 14 Feb 2020

See all articles by Andreas Fagereng

Andreas Fagereng

BI Norwegian Business School; Statistics Norway

Martin Blomhoff Holm

University of Oslo

Benjamin Moll

Princeton University - Department of Economics

Gisle James James Natvik

BI Norwegian Business School - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 2020

Abstract

Do wealthier households save a larger share of their incomes than poorer ones? We use Norwegian administrative panel data on income and wealth to answer this empirical question. The relation between saving rates and wealth crucially depends on whether saving includes capital gains. Saving rates net of capital gains ("net saving rates") are approximately constant across the wealth distribution. However, saving rates including capital gains ("gross saving rates") increase markedly with wealth. The proximate explanation is that wealthier households own assets that experience persistent capital gains which they hold onto instead of selling them off to consume ("saving by holding"). These joint patterns for net and gross saving rates challenge canonical models of household wealth accumulation. They are instead consistent with theories in which time-varying discount rates or portfolio adjustment frictions keep households from realizing capital gains. Between 1995 and 2015 Norway's aggregate wealth-to-income ratio rose from approximately 4 to 7. "Saving by holding" accounts for up to 80 percent of this increase.

Suggested Citation

Fagereng, Andreas and Holm, Martin Blomhoff and Moll, Benjamin and Natvik, Gisle James James, Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains (January 2020). CEPR Discussion Paper No. DP14355, Available at SSRN: https://ssrn.com/abstract=3535439

Andreas Fagereng (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Statistics Norway ( email )

Postboks 8131 Dep, 0033 Oslo
Oslo, Oslo 0033
Norway
+47 2109 4700 (Phone)

HOME PAGE: http://sites.google.com/site/andreasfagereng/

Martin Blomhoff Holm

University of Oslo ( email )

Moltke Moes Vei 31
Oslo, 0851
Norway

Benjamin Moll

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Gisle James James Natvik

BI Norwegian Business School - Department of Economics ( email )

Nydalsveien 37
Oslo, 0484
Norway

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