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Long-Run Saving Dynamics: Evidence from Unexpected Inheritances

Author

Listed:
  • Jeppe Druedahl

    (Department of Economics, CEBI, University of Copenhagen)

  • Alessandro Martinello

    (Lund University and KWC and SFI)

Abstract

We exploit inheritance episodes to provide novel causal evidence on long-run saving dynamics. For identification, we combine a panel of administrative wealth reports with the unexpected timing of sudden parental deaths. After inheritance, net worth converges towards the path established before parental death, and convergence is faster for liquid assets. Using a generalized structural framework, we show that buffer-stock and two-asset models can fit these dynamics, but only if agents are impatient enough and have both strong precautionary and post-retirement saving motives. Relative to standard calibrations, such agents have at least 50 percent higher precautionary savings for given total wealth.

Suggested Citation

  • Jeppe Druedahl & Alessandro Martinello, 2018. "Long-Run Saving Dynamics: Evidence from Unexpected Inheritances," CEBI working paper series 17-02, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
  • Handle: RePEc:kud:kucebi:1702
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    References listed on IDEAS

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    Cited by:

    1. Korom, Philipp, 2016. "Inherited advantage: The importance of inheritance for private wealth accumulation in Europe," MPIfG Discussion Paper 16/11, Max Planck Institute for the Study of Societies.
    2. Elinder, Mikael & Erixson, Oscar & Waldenström, Daniel, 2018. "Inheritance and wealth inequality: Evidence from population registers," Journal of Public Economics, Elsevier, vol. 165(C), pages 17-30.
    3. Bäckman, Claes & Khorunzhina, Natalia, 2020. "Interest-Only Mortgages and Consumption Growth: Evidence from a Mortgage Market Reform," MPRA Paper 98524, University Library of Munich, Germany.
    4. Andreas Fagereng & Martin B. Holm & Gisle J. Natvik, 2016. "MPC heterogeneity and household balance sheets," Discussion Papers 852, Statistics Norway, Research Department.
    5. Wolfgang Frimmel & Martin Halla & Jörg Paetzold & Julia Schmieder, 2020. "Health of Elderly Parents, Their Children's Labor Supply, and the Role of Migrant Care Workers," Discussion Papers of DIW Berlin 1902, DIW Berlin, German Institute for Economic Research.
    6. Fontenay, Sébastien & Tojerow, Ilan, 2020. "Work Disability after Motherhood and How Paternity Leave Can Help," IZA Discussion Papers 13756, Institute of Labor Economics (IZA).
    7. Emily Nix & Martin Eckhoff Andresen, 2019. "What Causes the Child Penalty? Evidence from Same Sex Couples and Policy Reforms," Discussion Papers 902, Statistics Norway, Research Department.

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    More about this item

    Keywords

    Inheritance; saving dynamics; consumption; buffer-stock; structural; causal; convergence; precautionary;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • 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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

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