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Motives for Transfers from Parents to Children: Tests with First-Time Homeowners’ Data

Author

Listed:
  • Christophe Kolodziejczyk

    (AKF, Danish Institute of Governmental Research)

  • Søren Leth-Petersen

    (Department of Economics, University of Copenhagen)

Abstract

There are good theoretical reasons why transfers from parents are likely to be important around the time of the first home purchase. Transactions costs associated with trading houses make people with increasing income paths prefer to buy a house that is more expensive than what matches their current income. This together with a down-payment constraint make some first-time house owners borrow to the limit and run down liquid assets at purchase thereby making them vulnerable to adverse income shocks. Intergenerational transfers can alleviate these constraints. Moreover, previous papers have suggested that transfers from parents to children are significant exactly around the time where children buy their first home. Using a panel data set issued from Danish administrative registers with information about wealth of a sample of first-time homeowners and their parents, we document that child and parent resources, house value as well as financial resources are correlated. We then go on to test if there are direct parental transfers targeted to the purchase of the house, and in case of an unemployment spell during the years after the purchase where children typically hold little liquid assets. We also test whether children consider parental wealth as part of their own precautionary savings. We do not find strong evidence of any of these hypotheses.

Suggested Citation

  • Christophe Kolodziejczyk & Søren Leth-Petersen, 2010. "Motives for Transfers from Parents to Children: Tests with First-Time Homeowners’ Data," CAM Working Papers 2010-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  • Handle: RePEc:kud:kuieca:2010_01
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    File URL: http://www.econ.ku.dk/cam/wp0910/2010-01.pdf/
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    References listed on IDEAS

    as
    1. Dan A. Black & Jeffrey A. Smith & Mark C. Berger & Brett J. Noel, 2003. "Is the Threat of Reemployment Services More Effective Than the Services Themselves? Evidence from Random Assignment in the UI System," American Economic Review, American Economic Association, pages 1313-1327.
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    More about this item

    Keywords

    intergenerational transfers; home purchase; saving; empirical analysis;

    JEL classification:

    • 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
    • R29 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other

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