IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Simulating the transmission of wealth inequality via bequests

  • Gokhale, Jagadeesh
  • Kotlikoff, Laurence J.
  • Sefton, James
  • Weale, Martin

This paper develops, calibrates, and simulates a dynamic 88-period OLG model to study the intergenerational transmission of U.S. wealth inequality via bequests. The model features marriage, realistic fertility patterns, random death, assortative mating based on skills, heterogeneous skill endowments, heterogeneous rates of return, skill inheritability, progressive income taxation, and resource annuitization via social security. All bequests arise from imperfect annuitization. Nonetheless, the model generates a realistic ration of aggregate wealth to aggregate labor income, a realistic bequest flow relative to the stock of wealth, and a realistic wealth distribution at retirement. Skill differences, assortative mating, social security, and the time preference are the primary determinants of wealth inequality. Bequests do propagate wealth inequality, but only in the presence of social security, which disproportionately disinherits the lifetime poor. Intergenerational wealth immobility, also considered here, is primarily determined by the inheritance of skills from one's parents and the magnification of the impact of this inheritance by marital sorting.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6V76-41MJ163-6/2/0f8afe37a3b2efce2797fa55fba09b6b
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 79 (2001)
Issue (Month): 1 (January)
Pages: 93-128

as
in new window

Handle: RePEc:eee:pubeco:v:79:y:2001:i:1:p:93-128
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

References listed on IDEAS
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.:

as in new window
  1. Laurence J. Kotlikoff & Lawrence H. Summers, 1980. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc.
  2. David Miles, 1997. "Demographics and savings: can we reconcile the evidence?," IFS Working Papers W97/06, Institute for Fiscal Studies.
  3. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, 1995. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," NBER Working Papers 5378, National Bureau of Economic Research, Inc.
  4. Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-94, March.
  5. Hubbard, R. Glenn & Skinner, Jonathan & Zeldes, Stephen P., 1994. "The importance of precautionary motives in explaining individual and aggregate saving," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 59-125, June.
  6. Steven Caldwell & Melissa Favreault & Alla Gantman & Jagadeesh Gokhale & Thomas Johnson, 1998. "Social Security's Treatment of Postwar Americans," NBER Working Papers 6603, National Bureau of Economic Research, Inc.
  7. Lorraine Dearden & Steve Machin & Howard Reed, 1995. "Intergenerational mobility in Britain," IFS Working Papers W95/20, Institute for Fiscal Studies.
  8. Blinder, Alan S, 1973. "A Model of Inherited Wealth," The Quarterly Journal of Economics, MIT Press, vol. 87(4), pages 608-26, November.
  9. Karl E. Case & Robert J. Shiller, 1990. "Forecasting Prices and Excess Returns in the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(3), pages 253-273.
  10. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
  11. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  12. Nancy A. Jianakoplos & Paul L. Menchik, 1997. "Wealth Mobility," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 18-31, February.
  13. Joseph E. Stiglitz, 1967. "Distribution of Income and Wealth Among Individuals," Cowles Foundation Discussion Papers 238, Cowles Foundation for Research in Economics, Yale University.
  14. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
  15. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, vol. 82(3), pages 409-29, June.
  16. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1986. "The Strategic Bequest Motive," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages S151-82, July.
  17. Laitner, John, 1979. "Household Bequest Behaviour and the National Distribution of Wealth," Review of Economic Studies, Wiley Blackwell, vol. 46(3), pages 467-83, July.
  18. James B. Davies & Peter J. Kuhn, 1991. "A Dynamic Model of Redistribution, Inheritance, and Inequality," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 324-44, May.
  19. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-98, December.
  20. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
  21. Menchik, Paul L, 1979. "Inter-generational Transmission of Inequality: An Empirical Study of Wealth Mobility," Economica, London School of Economics and Political Science, vol. 46(184), pages 349-62, November.
  22. Weale, Martin, 1992. "The Benefits of Higher Education: A Comparison of Universities and Polytechnics," Oxford Review of Economic Policy, Oxford University Press, vol. 8(2), pages 35-47, Summer.
  23. Blinder, Alan S, 1976. "Inequality and Mobility in the Distribution of Wealth," Kyklos, Wiley Blackwell, vol. 29(4), pages 607-38.
  24. Laitner, John, 1979. "Household Bequests, Perfect Expectations, and the National Distribution of Wealth," Econometrica, Econometric Society, vol. 47(5), pages 1175-93, September.
  25. Wilhelm, M.O., 1990. "Bequest Behavior And The Effect Of Heirs' Earnings: Testing The Altruistic Model Of Bequests," Papers 9-90-12, Pennsylvania State - Department of Economics.
  26. John Laitner & F. Thomas Juster, 1993. "New evidence on altruism: a study of TIAA-CREF retirees," Discussion Paper / Institute for Empirical Macroeconomics 86, Federal Reserve Bank of Minneapolis.
  27. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus & David N. Weil, 1994. "The annuitization of Americans' resources: a cohort analysis," Working Paper 9413, Federal Reserve Bank of Cleveland.
  28. Wilhelm, Mark O, 1997. "Inheritance, Steady-State Consumption Inequality, and the Lifetime Earnings Process," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(4), pages 466-76, September.
  29. Oulton, Nicholas, 1976. "Inheritance and the Distribution of Wealth," Oxford Economic Papers, Oxford University Press, vol. 28(1), pages 86-101, March.
  30. Atkinson, A B, 1971. "The Distribution of Wealth and the Individual Life-cycle," Oxford Economic Papers, Oxford University Press, vol. 23(2), pages 239-54, July.
  31. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1995. "Understanding the postwar decline in United States saving: a cohort analysis," Working Paper 9518, Federal Reserve Bank of Cleveland.
  32. Michael D. Hurd, 1986. "Savings and Bequests," NBER Working Papers 1826, National Bureau of Economic Research, Inc.
  33. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April.
  34. Pryor, Frederic L, 1973. "Simulation of the Impact of Social and Economic Institutions on the Size Distribution of Income and Wealth," American Economic Review, American Economic Association, vol. 63(1), pages 50-72, March.
  35. Flemming, J S, 1979. "The Effects of Earnings Inequality, Imperfect Capital Markets, and Dynastic Altruism on the Distribution of Wealth in Life Cycle Models," Economica, London School of Economics and Political Science, vol. 46(184), pages 363-80, November.
  36. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
  37. Davies, J B & Shorrocks, Anthony F, 1978. "Assessing the Quantitative Importance of Inheritance in the Distribution of Wealth," Oxford Economic Papers, Oxford University Press, vol. 30(1), pages 138-49, March.
  38. 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.
  39. Tomes, Nigel, 1981. "The Family, Inheritance, and the Intergenerational Transmission of Inequality," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 928-58, October.
  40. Davies, James B, 1982. "The Relative Impact of Inheritance and Other Factors on Economic Inequality," The Quarterly Journal of Economics, MIT Press, vol. 97(3), pages 471-98, August.
  41. Ionnides, Yannis M & Sato, Ryuzo, 1987. "On the Distribution of Wealth and Intergenerational Transfers," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 366-85, July.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:79:y:2001:i:1:p:93-128. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.