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What Can Shocks to Life Expectancy Reveal About Bequest Motives?

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  • Jens Kvaerner

Abstract

This paper investigates how a shock to life expectancy, resulting from a cancer diagnosis, impacts consumption and saving decisions. I infer bequest motives by using a unique data set containing individual cancer diagnoses and wealth of all citizens in Norway. Cancer diagnoses are useful instruments for identifying bequest motives because they provide new information about life expectancy, which affects a person’s consumption plan differently depending on the relative strength of bequest and classical life-cycle-savings motives. My empirical estimates show strong evidence for bequest motives. A spouse creates a direct bequest motive; couples tend to respond to a cancer diagnosis by saving more. This result holds both across the wealth distribution and over the life-cycle. In contrast to couples, singles respond to a cancer diagnosis by spending more. However, a large part of the decrease in financial wealth among singles with children reflects transfers of wealth during a person’s lifetime, so-called inter vivos transfers.

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  • Jens Kvaerner, 2016. "What Can Shocks to Life Expectancy Reveal About Bequest Motives?," 2016 Meeting Papers 1381, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1381
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