The Decline in Household Saving and the Wealth Effect

F. Thomas Juster; Joseph P. Lupton; James P. Smith; Frank Stafford

doi:10.1162/rest.2006.88.1.20

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The Decline in Household Saving and the Wealth Effect

F. Thomas Juster^1,2; Joseph P. Lupton^1,2; James P. Smith^1,2; Frank Stafford³

¹ Federal Reserve · ² Federal Reserve Board of Governors · ³ University of Michigan–Ann Arbor

The Review of Economics and Statistics 2006 open access

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.

DOI: 10.1162/rest.2006.88.1.20
Volume: 88 (1)
Pages: 20-27
Language: en
Export: BibTeX
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