The relationship between income inequality and savings: evidence from household‐level panel data in Vietnam

Abstract

The purpose of this paper is to address whether province-level income inequality is associated with household savings, as well as investigate how this relationship varies across different subgroups. The paper uses a unique balanced panel survey on access to resources of 2181 rural households between 2008 and 2014 in twelve provinces of Vietnam. An instrumental variablegeneralized method of moments approach aimed to tackle the issue of the endogeneity is applied to estimate relationships between relevant variables. Consistent with the prediction of the social status hypothesis, we find that income inequality positively impacts on households savings. Further analysis also shows that the effect of inequality on savings is somewhat stronger in those including poorer, richer, younger, and married-headed households than in the others. Our results are robust to alternative inequality measures and subsamples.