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Wealth Accumulation in the U.S.: Do Inheritances and Bequests Play a Significant Role?

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  • John Laitner

    (University of Michigan)

Abstract

This paper formulates an overlapping generations model with both life–cycle saving and altruistic bequests. For a given distribution of earning abilities, the model generates a stationary steady–state capital–to–labor ratio for the economy as a whole and a stationary distribution of net worth among households. We calibrate the model, using the 1995 Survey of Consumer Finances to fix the distribution of earning abilities, and using total 1995 U.S. wealth and Federal estate tax revenues to fix other key parameters. The analysis specifies its version of the Federal estate tax in detail, estimating the empirical degree of tax avoidance. Simulations show that the model can reproduce the high degree of wealth concentration evident in U.S. data. Most surprisingly, the analysis also suggests that the U.S. economy’s steady–state capital–to–output ratio will be insensitive to changes in the national debt and social security.

Suggested Citation

  • John Laitner, 2001. "Wealth Accumulation in the U.S.: Do Inheritances and Bequests Play a Significant Role?," Working Papers wp019, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp019
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    Cited by:

    1. John Laitner, 2003. "Labor Supply Responses to Social Security," Working Papers wp050, University of Michigan, Michigan Retirement Research Center.
    2. Fang Yang, 2009. "Consumption over the Life Cycle: How Different is Housing?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 423-443, July.
    3. John Laitner, 2002. "Transition Paths and Social Security Reform," Working Papers wp025, University of Michigan, Michigan Retirement Research Center.
    4. Christoph Winter, 2014. "Accounting for the Changing Role of Family Income in Determining College Entry," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(4), pages 909-963, October.
    5. Hendricks, Lutz, 2007. "How important is discount rate heterogeneity for wealth inequality?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 3042-3068, September.
    6. 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.
    7. Fang Yang, 2005. "Consumption Along the Life Cycle: How Different is Housing?," 2005 Meeting Papers 718, Society for Economic Dynamics.
    8. Audrey Desbonnet & Jean-Olivier Hairault, 2010. "Inégalité de patrimoine et progressivité de l'impôt," Economie & Prévision, La Documentation Française, vol. 0(2), pages 21-41.
    9. Erin Cottle Hunt & Frank N. Caliendo, 2023. "Social security and risk sharing: the role of economic mobility across generations," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1374-1407, October.
    10. Corina Boar, 2020. "Dynastic Precautionary Savings," NBER Working Papers 26635, National Bureau of Economic Research, Inc.
    11. John Laitner, 2002. "Wealth Inequality and Altruistic Bequests," American Economic Review, American Economic Association, vol. 92(2), pages 270-273, May.
    12. Barczyk, Daniel, 2016. "Ricardian equivalence revisited: Deficits, gifts and bequests," Journal of Economic Dynamics and Control, Elsevier, vol. 63(C), pages 1-24.
    13. Luisa Fuster & Ayşe İmrohoroğlu & Selahattin İmrohoroğlu, 2007. "Elimination of Social Security in a Dynastic Framework," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 113-145.
    14. Anthony A. Smith, Jr., 2003. "The Research Agenda: Business Cycles and Inequality," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 4(2), April.
    15. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis.
    16. Campbell, Jeffrey R. & Hercowitz, Zvi, 2009. "Welfare implications of the transition to high household debt," Journal of Monetary Economics, Elsevier, vol. 56(1), pages 1-16, January.
    17. Gomes, Francisco & Michaelides, Alexander, 2003. "Aggregate implications of defined benefit and defined contribution systems," LSE Research Online Documents on Economics 24868, London School of Economics and Political Science, LSE Library.
    18. John Laitner, 2004. "Precautionary Saving Over the Lifecycle," Working Papers wp083, University of Michigan, Michigan Retirement Research Center.
    19. Alex Michaelides & Francisco Gomes, 2003. "(UBS Pensions series 18) Aggregate Implications of Defined Benefit and Defined Contribution Systems," FMG Discussion Papers dp469, Financial Markets Group.
    20. Shinichi Nishiyama, 2002. "Bequests, Inter Vivos Transfers, and Wealth Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 892-931, October.

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