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Intergenerational Transfers and Savings

  • Laurence J. Kotlikoff

In recent years the role of intergenerational transfers in the process of wealth accumulation has been the subject of substantial empirical and theoretical analysis. The key question stimulating this research is what is the main explanation for savings? Is it primarily accumulation for retirement as claimed by Albert Ando, Richard Brumberg, and Franco Modigliani in their celebrated Life Cycle Model of Savings? Is it primarily intentional accumulation for intergenerational transfers? Or is it primarily precautionary savings, much of which may be bequeathed because of imperfections in annuity markets? This paper examines a range of findings on the importance of intergenerational transfers. The strong conclusion that emerges from this evidence is that intergenerational transfers play a very important, if not a key, role in aggregate wealth accumulation. While intergenerational transfers figure very large in savings, the precise motivation for such transfers is unclear. Intergenerational altruism might appear the most likely candidate, but at least sane stylized facts, such as the equal allocation of bequests among children, are strongly at adds with the altruism model. Other explanations involving imperfect insurance arrangements or payments for child services do not appear capable of explaining the substantial amounts of transfers actually observed. Sorting cut the relative contributions of different models to intergenerational transfers and the precise role of intergenerational transfers in the process of wealth accumulation remains an intriguing and exciting enterprise.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2237.

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Date of creation: May 1987
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Publication status: published as Journal of Economic Perspectives, Vol. 2, No. 2, pp. 41-58, (Spring 1988).
Handle: RePEc:nbr:nberwo:2237
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  1. Blinder, Alan S, 1973. "A Model of Inherited Wealth," The Quarterly Journal of Economics, MIT Press, vol. 87(4), pages 608-26, November.
  2. Alan J. Auerbach & Laurence J. Kotlikoff, 1984. "Simulating Alternative Social Security Responses to the Demographic Transition," NBER Working Papers 1308, National Bureau of Economic Research, Inc.
  3. B. Douglas Bernheim & Kyle Bagwell, 1986. "Is Everything Neutral?," NBER Working Papers 2086, National Bureau of Economic Research, Inc.
  4. Eckstein, Zvi & Eichenbaum, Martin & Peled, Dan, 1985. "Uncertain lifetimes and the welfare enhancing properties of annuity markets and social security," Journal of Public Economics, Elsevier, vol. 26(3), pages 303-326, April.
  5. David, Martin & Menchik, Paul L, 1985. "The Effect of Social Security on Lifetime Wealth Accumulation and Bequests," Economica, London School of Economics and Political Science, vol. 52(208), pages 421-34, November.
  6. Laurence J. Kotlikoff & John B. Shoven & Avia Spivak, 1987. "Annuity Markets, Savings, and the Capital Stock," NBER Chapters, in: Issues in Pension Economics, pages 211-236 National Bureau of Economic Research, Inc.
  7. Laurence J. Kotlikoff & John B. Shoven & Avia Spivak, 1984. "The Impact of Annuity Insurance on Savings and Inequality," NBER Working Papers 1403, National Bureau of Economic Research, Inc.
  8. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  9. Laurence J. Kotlikoff, 1979. "Some Economic Implications of Life Span Extension," UCLA Economics Working Papers 155, UCLA Department of Economics.
  10. Benjamin M. Friedman & Mark Warshawsky, 1985. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
  11. B. Douglas Bernheim & Andrei Shleifer & Lawrence H. Summers, 1984. "Bequests as a Means of Payment," NBER Working Papers 1303, National Bureau of Economic Research, Inc.
  12. J. B. Burbidge & A. L. Robb, 1985. "Evidence on Wealth-Age Profiles in Canadian Cross-Section Data," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 854-75, November.
  13. B. Douglas Bernheim, 1987. "Dissaving after Retirement: Testing the Pure Life Cycle Hypothesis," NBER Chapters, in: Issues in Pension Economics, pages 237-280 National Bureau of Economic Research, Inc.
  14. Seidman, Laurence S, 1983. "Taxes in a Life Cycle Growth Model with Bequests and Inheritances," American Economic Review, American Economic Association, vol. 73(3), pages 437-41, June.
  15. Skinner, Jonathan, 1985. "The Effect of Increased Longevity on Capital Accumulation," American Economic Review, American Economic Association, vol. 75(5), pages 1143-50, December.
  16. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-77, June.
  17. Mirer, Thad W, 1979. "The Wealth-Age Relation among the Aged," American Economic Review, American Economic Association, vol. 69(3), pages 435-43, June.
  18. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-46, June.
  19. 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.
  20. E. Sheshinski & Y. Wiess, 1978. "Uncertainty and Optimal Social Security Systems," Working papers 225, Massachusetts Institute of Technology (MIT), Department of Economics.
  21. Menchik, Paul L, 1980. "Primogeniture, Equal Sharing, and the U. S. Distribution of Wealth," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 299-316, March.
  22. Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 81-114.
  23. Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 71(4), pages 533-44, September.
  24. Menchik, Paul L & David, Martin, 1983. "Income Distribution, Lifetime Savings, and Bequests," American Economic Review, American Economic Association, vol. 73(4), pages 672-90, September.
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