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To leave or not to leave: the distribution of bequest motives

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Author Info
Wojciech Kopczuk
Joseph P. Lupton

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Abstract

In this paper, we examine the effect of observed and unobserved heterogeneity in the desire to die with positive net worth. Using a structural life-cycle model nested in a switching regression with unknown sample separation, we find that roughly 70 percent of the elderly single population has a bequest motive that may or may not be active depending on the level of resources at a given age. Both the presence and the magnitude of the bequest motive are statistically and economically significant. All else being equal, households with an operative bequest motive spend between $4,000 and $9,000 a year less on consumption expenditures on average. We conclude that, among the elderly single households in our sample, approximately half of bequeathed wealth will be due to a bequest motive.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2004-33.

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Date of creation: 2004
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Handle: RePEc:fip:fedgfe:2004-33

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Keywords: Inheritance and succession

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  2. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 1997. "What Accounts for the Variation in Retirement Wealth Among U.S. Households?," NBER Working Papers 6227, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Laurence J. Kotlikoff & Lawrence H. Summers, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Bernheim, B. Douglas & Lemke, Robert J. & Scholz, John Karl, 2004. "Do estate and gift taxes affect the timing of private transfers?," Journal of Public Economics, Elsevier, vol. 88(12), pages 2617-2634, December. [Downloadable!] (restricted)
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  5. Christopher D. Carroll, 1998. "Why Do the Rich Save So Much?," NBER Working Papers 6549, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Bernheim, B Douglas, 1991. "How Strong Are Bequest Motives? Evidence Based on Estimates of the Demand for Life Insurance and Annuities," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 899-927, October. [Downloadable!] (restricted)
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  7. F. Thomas Juster & Joseph P. Lupton & James P. Smith & Frank Stafford, 2006. "The Decline in Household Saving and the Wealth Effect," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 20-27, January. [Downloadable!] (restricted)
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  8. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
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  9. Kuehlwein, Michael, 1993. "Life-Cycle and Altruistic Theories of Saving with Lifetime Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 38-47, February. [Downloadable!] (restricted)
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  11. Page, Benjamin R., 2003. "Bequest taxes, inter vivos gifts, and the bequest motive," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1219-1229, May. [Downloadable!] (restricted)
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  14. Modigliani, Franco, 1988. "The Role of Intergenerational Transfers and Life Cycle Saving in the Accumulation of Wealth," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 15-40, Spring. [Downloadable!] (restricted)
  15. Palumbo, Michael G, 1999. "Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle," Review of Economic Studies, Blackwell Publishing, vol. 66(2), pages 395-421, April. [Downloadable!] (restricted)
  16. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April. [Downloadable!] (restricted)
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  17. Laitner, John & Juster, F Thomas, 1996. "New Evidence on Altruism: A Study of TIAA-CREF Retirees," American Economic Review, American Economic Association, vol. 86(4), pages 893-908, September. [Downloadable!] (restricted)
  18. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring. [Downloadable!] (restricted)
  19. Laitner, John & Ohlsson, Henry, 2001. "Bequest motives: a comparison of Sweden and the United States," Journal of Public Economics, Elsevier, vol. 79(1), pages 205-236, January. [Downloadable!] (restricted)
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  20. Venti, Steven F & Wise, David A, 1998. "The Cause of Wealth Dispersion at Retirement: Choice or Chance?," American Economic Review, American Economic Association, vol. 88(2), pages 185-91, May. [Downloadable!] (restricted)
  21. William G. Gale & John Karl Scholz, 1991. "Intergenerational Transfers and the Accumulation of Wealth," UCLA Economics Working Papers 624, UCLA Department of Economics. [Downloadable!]
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  22. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July. [Downloadable!] (restricted)
  23. Wilhelm, Mark O, 1996. "Bequest Behavior and the Effect of Heirs' Earnings: Testing the Altruistic Model of Bequests," American Economic Review, American Economic Association, vol. 86(4), pages 874-92, September. [Downloadable!] (restricted)
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  24. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June. [Downloadable!] (restricted)
  25. Michael D. Hurd & B. Gabriela Mundaca, 1987. "The Importance of Gifts and Inheritances Among the Affluent," NBER Working Papers 2415, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  26. McGarry, Kathleen, 1999. "Inter vivos transfers and intended bequests," Journal of Public Economics, Elsevier, vol. 73(3), pages 321-351, September. [Downloadable!] (restricted)
  27. Angus Deaton, 2003. "Health, Inequality, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 113-158, March.
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  28. Hurd, Michael D, 1987. "Savings of the Elderly and Desired Bequests," American Economic Review, American Economic Association, vol. 77(3), pages 298-312, June.
  29. F. Thomas Juster & James P. Smith, 2004. "Improving the Quality of Economic Data: Lessons from the HRS and AHEAD," Labor and Demography 0402010, EconWPA. [Downloadable!]
  30. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2002. "The Importance of Bequests and Life-Cycle Saving in Capital Accumulation: A New Answer," American Economic Review, American Economic Association, vol. 92(2), pages 274-278, May. [Downloadable!] (restricted)
  31. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-66, December.
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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. George M. Constantinides & John B. Donaldson & Rajnish Mehra, 2005. "Junior is Rich: Bequests as Consumption," NBER Working Papers 11122, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2007. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," International Studies Program Working Paper Series, at AYSPS, GSU paper0720, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
    Other versions:
  3. Eytan Sheshinski, 2006. "Longevity and Aggregate Savings," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  4. Ryan D. Edwards, 2008. "The Cost of Uncertain Life Span," NBER Working Papers 14093, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Rajnish Mehra & Edwarad C Prescott & Facundo Piguillem, 2007. "Intermediated Quantities and Returns," Levine's Bibliography 122247000000001580, UCLA Department of Economics. [Downloadable!]
    Other versions:
  6. Jess Benhabib & Shenghao Zhu, 2008. "Age, Luck, and Inheritance," NBER Working Papers 14128, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. John Ameriks & Andrew Caplin & Steven Laufer & Stijn Van Nieuwerburgh, 2007. "The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Bequest and Precautionary Motives," NBER Working Papers 13105, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Liran Einav & Amy Finkelstein & Paul Schrimpf, 2007. "The Welfare Cost of Asymmetric Information: Evidence from the U.K. Annuity Market," NBER Working Papers 13228, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Werner Güth & Kurt-Dieter Koschmieder & M. Vittoria Levati & Ev Martin, 2005. "How to Preserve a Fortune: An Experimental Comparison of Foundations and Direct Transfers to the Heir," Discussion Papers on Strategic Interaction 2005-33, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  10. Mathias Sommer, 2007. "Savings motives and the effectiveness of tax incentives – an analysis based on the demand for life insurance in Germany," MEA discussion paper series 07125, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
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