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The Marginal Propensity to Spend on Adult Children

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Author Info
Joseph G. Altonji (Yale University)
Ernesto Villanueva (Bank of Spain)

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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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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1488&context=bejeap
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 7 (2007)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejeap:v:7:y:2007:i:1:n:14

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Related research
Keywords: intervivos transfers; bequests; income and wealth;

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Find related papers by JEL classification:
D10 - Microeconomics - - Household Behavior - - - General
D3 - Microeconomics - - Distribution
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marco Cagetti & Mariacristina De Nardi, 2006. "Wealth Inequality: Data and Models," NBER Working Papers 12550, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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