Do the High-Income Households Save More?

Do high income households save more? This simple question is crucial when answering many public policy questions such as: are consumption taxes regressive? What is the effect of a tax increase targeting high income? Should we subsidize retirement savings?,… Saving rates have always been found positively linked to current income. Nevertheless, saving behavior might be related to a long-term decision and hence not be only linked to current income. Indeed, households could tend to “smooth” their consumption. For instance, in case of exceptionally high income, they could increase their savings. Thus saving should be determined by another concept of income: permanent income, defined as actualized sum of expected income without transitory variations. We study the link between saving rate and income using French data and combining five different methods always used separately so far. Hence we were able to compare results from different methods obtained on same data and check for robustness. Our results show consistently that saving rate is positively correlated with current and permanent income.