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Savings and Bequests

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Michael D. Hurd

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Abstract

Empirical studies have indicated that the elderly seem to accumulate wealth after retirement, and that the desire to leave bequests is an important determinent of saving behavior, both kinds of results have cast doubt on the validity of the life cycle hypothesis of consumption. In the first part of this paper, a model of bequests is specified, and the implications for consumption and wealth trajectories are derived. The main result is that, even with a bequest motive, consumption generally decreases with age after retirement, and that wealth will also decrease for all but wealthy households. In the empirical part of the paper, wealth changes of retired households are reported over 10 years of panel data. Contrary to many results from cross-section data, the elderly do dissave: over 10 years the wealth of the elderly in the sample decreases by about 27 real. A test for a bequest motive is proposed. There is no evidence whatsoever for abequest motive.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1826.

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Date of creation: Nov 1989
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Handle: RePEc:nbr:nberwo:1826

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  1. 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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  2. Jagadeesh Gokhale & Laurence J. Kotlikoff, 1999. "The impact of Social Security and other factors on the distribution of wealth," Working Paper 9913, Federal Reserve Bank of Cleveland. [Downloadable!]
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  3. Johanna Francis, 2008. "Wealth and the Capitalist Spirit," Fordham Economics Discussion Paper Series dp2008-10, Fordham University, Department of Economics. [Downloadable!]
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  4. Michael J. Boskin, 1987. "Concepts and Measures of Federal Deficits and Debt and Their Impact on Economic Activity," NBER Working Papers 2332, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Impavido, Gregorio & Thorburn, Craig & Wadsworth, Mike, 2004. "A conceptual framework for retirement products : Risk sharing arrangements between providers and retirees," Policy Research Working Paper Series 3208, The World Bank. [Downloadable!]
  6. Jagadeesh Gokhale & Laurence J. Kotlikoff & James Sefton & Martin Weale, 1999. "Simulating the Transmission of Wealth Inequity via Bequests," NBER Working Papers 7183, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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