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Mon, March 23
Lundberg, State Care of the Elderly & Labor Supply of Adult Children

The Decline in Household Saving and the Wealth Effect

Publication Abstract

Juster, F.T., J.P. Lupton, J.P. Smith, and Frank P. Stafford. 2006. "The Decline in Household Saving and the Wealth Effect." Review of Economics and Statistics, 88(1): 20-27.

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 5-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 effects across asset types results in a significant understatement of their size.

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