The Savings Wedge
Abstract:
We derive a new criterion for evaluating over- or under-saving i n over-lapping generations economies with both ex-ante and ex-post househol d heterogeneity. Our criterion, which we call the Savings Wedge, nests the traditional ‘r vs. g’ (Golden Rule) criterion as a special case, but accoun ts for how aggregate savings affects households’ exposure to uninsurable ri sk and shifts the income distribution, and can be thought of as a risk and redistribution robust Golden Rule criterion. A second-order approximation o f the Savings Wedge yields a tractable formula of measurable statistics. Us ing PSID data from 1978 to 2024, we measure the Savings Wedge in the United States and compare our measure to the traditional Golden Rule. The latter implies mild under-saving (10 percent) before 2005, then mild over-saving ( 6 percent). Relative to the Golden Rule, our criterion suggests substantial ly more under-saving, driven by both high levels of capital income risk and capital income inequality being greater than labor income inequality. We f ind the U.S. under-saves by 30 percent before 2005, with no over-saving in the later years
DTSTAMP:20261020T161609Z DTSTART:20261026T163000Z DTEND:20261026T180000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR