Why do the rich save more? A theory and Australian evidence

Debajyoti Chakrabarty*, Hajime Katayama, Hanna Maslen

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)


We provide a theory to explain the existence of inequality in an economy where agents have identical preferences and have access to the same production technology. Agents consume a 'health' good which determines their subjective discount factor. Depending on initial distribution of capital the economy gets separated into different permanent-income groups. This leads to a testable hypothesis: 'The rich save a larger proportion of their permanent-income'. We test this implication for savings behaviour in Australia. We find that even after controlling for lifecycle and health characteristics, higher permanent income is positively related with higher savings rates and better saving habits.

Original languageEnglish
Pages (from-to)S32-S44
JournalEconomic Record
Issue numberSUPPL.1
Publication statusPublished - 2008
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics


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