Effects of Aspirations and Habits on the Distribution of Wealth

We analyze how the introduction of habits and aspirations affects the distribution of wealth when the labor productivity of individuals is subject to idiosyncratic shocks and when bequests arise from a joy-of-giving motive. In the presence of either bequests or aspirations, labor income shocks are t...

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Bibliographic Details
Published in:The Scandinavian journal of economics 2014-10, Vol.116 (4), p.1012-1043
Main Authors: Caballe, Jordi, Moro-Egido, Ana I
Format: Article
Language:English
Subjects:
Analysis
Aspirations
Autocorrelation
Bequests
Coefficients
Consumer behavior
Consumer economics
Consumption
D31
Distribution of wealth
E21
E62
Economic shock
Economic theory
Habits
Income distribution
Labor economics
Labour productivity
Mathematical moments
mobility
Steady state economies
Studies
variability
Wealth
Wealth distribution
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Summary:We analyze how the introduction of habits and aspirations affects the distribution of wealth when the labor productivity of individuals is subject to idiosyncratic shocks and when bequests arise from a joy-of-giving motive. In the presence of either bequests or aspirations, labor income shocks are transmitted intergenerationally, and this transmission, together with contemporaneous shocks, determines the distribution of wealth. We show that the introduction of aspirations (habits) decreases (increases) the average wealth, and increases (decreases) both its intragenerational variability and the degree of intergenerational mobility. Therefore, a distinction between aspirations and habits is relevant because they involve different implications for the distribution of wealth.
ISSN:0347-0520
1467-9442
DOI:10.1111/sjoe.12069