The Decline in Household Saving and the Wealth Effect

18 Pages Posted: 24 Sep 2004

See all articles by Joseph Lupton

Joseph Lupton

University of Michigan at Ann Arbor - Department of Economics; Board of Governors of the Federal Reserve - Division of Research and Statistics

James P. Smith

RAND Corporation; IZA Institute of Labor Economics

Frank P. Stafford

University of Michigan at Ann Arbor - Department of Economics

F. Thomas Juster

University of Michigan at Ann Arbor - Institute for Social Research (ISR)

Abstract

Using a unique set of household level panel data, we estimate the effect of capital gains on saving by asset type, controlling for observable and unobservable household specific fixed effects. The results suggest that the decline in the personal saving rate since 1984 is largely due to the significant capital gains in corporate equities experienced over this period. Over five-year periods, the effect of capital gains in corporate equities on saving is substantially larger than the effect of capital gains in housing or other assets. Failure to differentiate wealth affects across asset types results in a significant understatement or overstatement of the size of their impact, depending on the asset.

Keywords: Personal saving, wealth effect, capital gains

JEL Classification: D12, E21

Suggested Citation

Lupton, Joseph P. and Smith, James P. and Stafford, Frank P. and Juster, F. Thomas, The Decline in Household Saving and the Wealth Effect. FEDS Working Paper No. 2004-32. Available at SSRN: https://ssrn.com/abstract=594821 or http://dx.doi.org/10.2139/ssrn.594821

Joseph P. Lupton (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Board of Governors of the Federal Reserve - Division of Research and Statistics

20th and C Streets, NW
Washington, DC 20551
United States

James P. Smith

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Frank P. Stafford

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

F. Thomas Juster

University of Michigan at Ann Arbor - Institute for Social Research (ISR)

Ann Arbor, MI 48106-1248
United States

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