Seminar
Rein Haagsma: Income inequality and saving in a class society. The role of ordinal status
This paper examines the impact of income growth and income inequality on household saving rates and payoffs in a non-cooperative game where each player's payoff depends on her present and future consumption and her rank in the present-consumption distribution.
The setting is a pooling equilibrium with three clusters of successive income groups, each cluster having its own present-consumption standard and rank in the present-consumption distribution. The analysis therefore addresses the saving behaviour and welfare of three social classes: the lower, middle and upper class. We find explanations for the Easterlin paradox and the Kuznets consumption puzzle and conclude that rank concerns tend to weaken the standard effect of inequality on aggregate saving.