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Inter vivos Transfers and Intended Bequests

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  • Kathleen McGarry
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    Abstract

    Empirical work on intergenerational transfers has focused on distinguishing between altruistic and exchange motivated behavior. However, these two models are unable to explain the strong tendency for estates to be divided equally across children, while inter vivos transfers are made unequally. This paper presents a new framework for analyzing transfers from parents to children that is more consistent with observed behavior than are the altruistic and exchange models alone. In particular the model developed here allows for differing behavior with respect to inter vivos transfers and bequests due to uncertainty about the recipient's permanent income. The empirical work uses data from the Health and Retirement Survey and the Asset and Health Dynamics Survey. The patterns observed in these data are consistent with earlier findings that inter vivos transfers go disproportionately to less well-off children, while bequests are divided equally across children. Further, the results support the prediction of the model in that differences in inter vivos transfers arise from differences in current income, while bequests are unequal when the children's permanent incomes are different.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6345.

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    Date of creation: Dec 1997
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    Publication status: published as Journal of Public Economics, Vol. 73, no. 3 (September 1999): 321-351.
    Handle: RePEc:nbr:nberwo:6345

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    1. William G. Gale & John Karl Scholz, 1991. "Intergenerational Transfers and the Accumulation of Wealth," UCLA Economics Working Papers 624, UCLA Department of Economics.
    2. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
    3. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, . "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," IPR working papers 95-22, Institute for Policy Resarch at Northwestern University.
    4. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
    5. Hurd, Michael D, 1987. "Savings of the Elderly and Desired Bequests," American Economic Review, American Economic Association, vol. 77(3), pages 298-312, June.
    6. Shleifer, Andrei & Summers, Lawrence H. & Bernheim, B. Douglas, 1986. "The Strategic Bequest Motive," Scholarly Articles 3721794, Harvard University Department of Economics.
    7. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
    8. Wilhelm, M.O., 1990. "Bequest Behavior And The Effect Of Heirs' Earnings: Testing The Altruistic Model Of Bequests," Papers, Pennsylvania State - Department of Economics 9-90-12, Pennsylvania State - Department of Economics.
    9. Cox, Donald & Rank, Mark R, 1992. "Inter-vivos Transfers and Intergenerational Exchange," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 305-14, May.
    10. Behrman, Jere R & Pollak, Robert A & Taubman, Paul, 1982. "Parental Preferences and Provision for Progeny," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(1), pages 52-73, February.
    11. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 47(1), pages 225-38, January.
    12. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, Econometric Society, vol. 50(2), pages 461-81, March.
    13. Joseph G. Altonji & Thomas A. Dunn, 1991. "Relationships Among the Family Incomes and Labor Market Outcomes of Relatives," NBER Working Papers 3724, National Bureau of Economic Research, Inc.
    14. Kathleen McGarry & Robert F. Schoeni, 1995. "Transfer Behavior within the Family: Results from the Asset and Health Dynamics Survey," NBER Working Papers 5099, National Bureau of Economic Research, Inc.
    15. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198288244, October.
    16. Gary Solon & Mary Corcoran & GRoger Gordon & Deborah Laren, 1991. "A Longitudinal Analysis of Sibling Correlations in Economic Status," Journal of Human Resources, University of Wisconsin Press, vol. 26(3), pages 509-534.
    17. Joseph G. Altonji & Fumio Hayashi & Laurence J. Kotlikoff, 1989. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," NBER Working Papers 3046, National Bureau of Economic Research, Inc.
    18. Menchik, Paul L, 1980. "Primogeniture, Equal Sharing, and the U. S. Distribution of Wealth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(2), pages 299-316, March.
    19. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(3), pages 508-46, June.
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    Cited by:
    1. Cristóbal Huneeus, 2001. "Principales motivaciones de los chilenos para ahorrar: Evidencia usando datos subjetivos," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.), Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 8, pages 241-262 Central Bank of Chile.
    2. Aughinbaugh, Alison, 2000. "Reapplication and extension: intergenerational mobility in the United States," Labour Economics, Elsevier, vol. 7(6), pages 785-796, November.
    3. Willis, Robert J., 1999. "Theory confronts data: how the HRS is shaped by the economics of aging and how the economics of aging will be shaped by the HRS," Labour Economics, Elsevier, vol. 6(2), pages 119-145, June.
    4. Sumon K. Bhaumik, 2001. "Intergenerational transfers: the ignored role of time," MPIDR Working Papers WP-2001-008, Max Planck Institute for Demographic Research, Rostock, Germany.
    5. James Poterba, 1998. "Estate and Gift Taxes and Incentives for Inter Vivos Giving in the United States," NBER Working Papers 6842, National Bureau of Economic Research, Inc.
    6. William G. Gale & Joel B. Slemrod, 2001. "Rethinking the Estate and Gift Tax: Overview," NBER Working Papers 8205, National Bureau of Economic Research, Inc.
    7. James Poterba, 1997. "The Estate Tax and After-Tax Investment Returns," NBER Working Papers 6337, National Bureau of Economic Research, Inc.

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