Saving Rate Heterogeneity across the Wealth Distribution in the United States

Abstract

Existing studies on saving rate heterogeneity across the U.S. wealth distribution rely on the synthetic method, which ignores wealth rank mobility. This paper formalizes two mobility-consistent estimators and applies them to Panel Study of Income Dynamics data. The synthetic method underestimates saving rates by more than 100% across most of the wealth distribution and overstates saving rate inequality. The mobility contribution to estimated saving rates is positive throughout and declines with wealth, from over 100% in the middle to 15–32% for the top wealth decile. The mobility-consistent estimates show that saving rates out of labor income and new resources rise strongly with wealth, while saving rates out of wealth and available resources are stable or increase only moderately. The positive relationship between saving rates and wealth is driven predominantly by passive saving: for the top wealth decile, over 80% of total saving consists of capital gains. The paper provides several empirical moments that are of interest to the heterogeneous agent macro literature.