Discussion paper

DP16479 Play for the Rich and Work for the Poor? The Optimal Distribution of Saving and Work in the Heterogeneous Agents Neoclassical Growth Model

In an economy with un-insurable idiosyncratic labor income risk, how should saving and work hours be distributed across income and wealth? To answer this question, we study a planner who cannot complete asset markets, but dictates how much individuals must work and save. With a U.S. calibration, the planner raises total savings but not hours, driving up aggregate wages which re-distributes income toward the consumption-poor. Across the distribution, the productive (high wage earners) should save more; the wealthy should work more; the poor should keep their work hours unchanged and take advantage of the indirect transfers from higher wages.

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Citation

Wolf, M and A Shanker (eds) (2021), “DP16479 Play for the Rich and Work for the Poor? The Optimal Distribution of Saving and Work in the Heterogeneous Agents Neoclassical Growth Model”, CEPR Press Discussion Paper No. 16479. https://cepr.org/publications/dp16479