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The Marginal Propensity to Spend on Adult Children

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  • Altonji Joseph G

    () (Yale University)

  • Villanueva Ernesto

    () (Bank of Spain)

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.

Suggested Citation

  • Altonji Joseph G & Villanueva Ernesto, 2007. "The Marginal Propensity to Spend on Adult Children," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-52, February.
  • Handle: RePEc:bpj:bejeap:v:7:y:2007:i:1:n:14
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    Cited by:

    1. Francisco Alvarez-Cuadrado & Ngo Van Long, 2012. "Envy and Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 949-973, September.
    2. repec:red:issued:16-340 is not listed on IDEAS
    3. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    4. Alvarez-Cuadrado, Francisco & Van Long, Ngo, 2011. "The relative income hypothesis," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1489-1501, September.
    5. Yang, Fang, 2013. "Social security reform with impure intergenerational altruism," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 52-67.
    6. Fang Yang, 2005. "Consumption Along the Life Cycle: How Different is Housing?," 2005 Meeting Papers 718, Society for Economic Dynamics.
    7. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    8. Frank Cowell & Dirk Van de gaer, 2017. "Condorcet was Wrong, Pareto was Right: Families, Inheritance and Inequality," STICERD - Public Economics Programme Discussion Papers 34, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    9. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "A Permanent Income Version of the Relative Income Hypothesis," CESifo Working Paper Series 2361, CESifo Group Munich.
    10. 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.
    11. Justine Hastings & Ebonya Washington, 2010. "The First of the Month Effect: Consumer Behavior and Store Responses," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 142-162, May.
    12. Bianchi Suzanne, 2011. "Family Data and Research in the Health and Retirement Study," Forum for Health Economics & Policy, De Gruyter, vol. 14(3), pages 1-15, April.
    13. Fang (Annie) Yang, 2006. "Consumption Over Life Cycle: How Different is Housing?," Discussion Papers 06-01, University at Albany, SUNY, Department of Economics.
    14. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis.
    15. Ernesto Villanueva, 2005. "Inter vivos transfers and bequests in three OECD countries," Economic Policy, CEPR;CES;MSH, vol. 20(43), pages 505-565, July.
    16. Alvarez-Cuadrado, Francisco & El-Attar, Mayssun, 2012. "Income Inequality and Saving," IZA Discussion Papers 7083, Institute for the Study of Labor (IZA).
    17. Sule Alan & Kadir Atalay & Thomas F. Crossley, 2015. "Do the Rich Save More? Evidence from Canada," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(4), pages 739-758, December.
    18. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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