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The Marginal Propensity to Spend on Adult Children

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  • Altonji Joseph G

    ()
    (Yale University)

  • Villanueva Ernesto

    ()
    (Bank of Spain)

Abstract

We use mortality rates and age specific estimates of the response of transfers and wealth to lifetime resources to estimate how much of an extra dollar of parental lifetime resources will ultimately be passed on to adult children in the form of inter vivos transfers and bequests. We find that parents pass on between 2 and 3 cents of an extra dollar of expected lifetime resources in bequests and about 3 cents in transfers, which together amount to about one fifth of our rough estimate of the marginal propensity to spend on children under 18 and on college. The value of .4 relating earnings of the child to earnings of the parent rises to about .46 when the effect of parental earnings on bequests and transfers is added on, although the estimate is lower for nonwhites and varies with assumptions about the intergenerational earnings correlation and the number of children.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 7 (2007)
Issue (Month): 1 (February)
Pages: 1-52

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Handle: RePEc:bpj:bejeap:v:7:y:2007:i:1:n:14

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Citations

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Cited by:
  1. Fang (Annie) Yang, 2008. "Accounting for the Heterogeneity in Retirement Wealth," Discussion Papers 08-01, University at Albany, SUNY, Department of Economics.
  2. Fang Yang & Wenli Li, 2009. "Deconstructing Life-cycle Consumption with Home Production," 2009 Meeting Papers 670, Society for Economic Dynamics.
  3. Fang Yang, 2012. "Social Security Reform with Impure Intergenerational Altruism," Discussion Papers 12-01, University at Albany, SUNY, Department of Economics.
  4. Marco Cagetti & Mariacristina De Nardi, 2005. "Wealth inequality: data and models," Working Paper Series WP-05-10, Federal Reserve Bank of Chicago.
  5. Fang Yang, 2006. "Consumption along the life cycle: how different is housing?," Working Papers 635, Federal Reserve Bank of Minneapolis.
  6. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "The Relative Income Hypothesis," CIRANO Working Papers 2008s-18, CIRANO.
  7. Ernesto Villanueva, 2005. "Inter vivos transfers and bequests in three OECD countries," Economic Policy, CEPR & CES & MSH, vol. 20(43), pages 505-565, 07.
  8. Alvarez-Cuadrado, Francisco & El-Attar, Mayssun, 2012. "Income Inequality and Saving," IZA Discussion Papers 7083, Institute for the Study of Labor (IZA).
  9. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "A Permanent Income Version of the Relative Income Hypothesis," CESifo Working Paper Series 2361, CESifo Group Munich.
  10. Francisco Alvarez-Cuadrado & Ngo Van Long, 2009. "Envy And Inequality," Departmental Working Papers 2009-03, McGill University, Department of Economics.
  11. Justine Hastings & Ebonya Washington, 2010. "The First of the Month Effect: Consumer Behavior and Store Responses," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 142-62, May.
  12. Fang (Annie) Yang, 2006. "Consumption Over Life Cycle: How Different is Housing?," Discussion Papers 06-01, University at Albany, SUNY, Department of Economics.

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