Keywords: Personal saving, wealth effect, capital gains
Abstract: 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.
Full paper (193 KB PDF)
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Last update: June 7, 2004