Do richer people have higher saving rates? The short-run and long-run consumption functions have different answers to this important question, which results in an important “consumption puzzle" that was a focus of macroeconomic research in the 1950s and 1960s. 1n a recent empirical contribution, Dynan, Skinner and Zeldes (2004) revive this old question and make this “consumption puzzle" more intriguing, by showing that the average propensity to consume decreases not only with current income but also with lifetime income. This paper provides a model that helps resolve this puzzle from an intergenerational perspective.
Fan, C. S. (2006).Do the rich save more? A new view based on intergenerational transfers (CPPS Working Paper Series No.167). Retrieved from Lingnan University website: http://commons.ln.edu.hk/cppswp/78/