Income inequality and aggregate saving : the cross-country evidence

The authors empirically review and analyze the link between income distribution and aggregate savings. Recent research has focused on the impact of income inequality and growth. Less attention has been paid to the link between inequality and savings. Once the conventional representative-agent framework is abandoned, consumption theory brings out channels through which income inequality can affect aggregate saving. The authors present new econometric evidence on the link between saving and inequality using new data on income distribution for a large cross-country sample. The results provide no evidence that income inequality affects aggregate saving across countries. This conclusion holds for both industrial and developing countries and is open to changes in measures of saving, in income distribution indicators, and in functional forms.