Inheritance Expectations, Dynastic Altruism, and Education

Using Italian microdata, this paper documents that, conditional on parental resources, education, and transfers, (i) expecting an inheritance predicts a 19.6 percentage points (63.5%) higher probability of university enrollment, and (ii) expected heirs tend to belong to altruistic dynasties, since having received an inheritance nearly doubles the intention to leave a bequest. I rationalize these findings with a stylized model where dynastic altruism underpins expected heirs’ stronger bequest motives. They accumulate human capital to increase lifetime income, hence the ability to finance bequests. The quantitative model attributes 44% of the gap in student rates between expected heirs and the rest to dynastic bequest motives, 35% to coresidence with parents and inter vivos transfers, whereas the expected wealth transfer itself has a strong negative effect on education. Policy counterfactuals show that inheritance taxation raises enrollment, especially when it funds student grants, and that the link between inheritance expectations and education is stronger when the discounted returns to education are lower. These findings help explain intergenerational persistence in education, wealth, and income, and highlight how inheritance taxation can affect the level and composition of human capital. (Stone Center on Socio-Economic Inequality Working Paper)