IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Dynastic Precautionary Savings

Listed author(s):
  • Corina Boar

    (University of Rochester)

Registered author(s):

    This paper demonstrates that parents accumulate savings to insure their children against income risk. I refer to these as dynastic precautionary savings. Using a sample of matched parent-child pairs from the Panel Study of Income Dynamics, I test for dynastic precautionary savings by examining the response of parental consumption to the child’s permanent income uncertainty. I exploit variation in permanent income risk across age and industry-occupation groups to confirm that higher uncertainty in the child’s permanent income depresses parental consumption. In particular, I find that the elasticity of parental consumption to child’s permanent income risk ranges between -0.08 and -0.06, and is of similar magnitude to the elasticity of parental consumption to own income risk. Motivated by the empirical evidence, I analyze the implications of dynastic precautionary saving in a quantitative model of altruistically linked overlapping generations. I use the model to (i) examine the size and timing of inter-vivos transfers and bequest, (ii) perform counterfactual experiments to isolate the contribution of dynastic precautionary savings to wealth accumulation and intergenerational transfers, and (iii) assess the effect of two policy proposals that can affect parents’ incentives to engage in dynastic precautionary savings: universal basic income and guaranteed minimum income. Lastly, I explore the implications of strategic interactions between parents and children for parents’ precautionary and dynastic precautionary behavior.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: https://economicdynamics.org/meetpapers/2017/paper_343.pdf
    Download Restriction: no

    Paper provided by Society for Economic Dynamics in its series 2017 Meeting Papers with number 343.

    as
    in new window

    Length:
    Date of creation: 2017
    Handle: RePEc:red:sed017:343
    Contact details of provider: Postal:
    Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page: http://www.EconomicDynamics.org/
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Serdar Ozkan & Jae Song & Fatih Karahan & Fatih Guvenen, 2013. "What Do Data on Millions of U.S. Workers Say About Labor Income Risk?," 2013 Meeting Papers 1271, Society for Economic Dynamics.
    2. Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 39-75, February.
    3. Mi Luo & Matthew Shapiro & Joseph Briggs & Chris Tonetti & Andrew Caplin & John Ameriks, 2016. "Inter-generational transfers and precautionary saving," 2016 Meeting Papers 1616, Society for Economic Dynamics.
    4. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    5. Daniel Barczyk & Matthias Kredler, 2014. "Altruistically motivated transfers under uncertainty," Quantitative Economics, Econometric Society, vol. 5(3), pages 705-749, November.
    6. Fatih Karahan & Serdar Ozkan, 2013. "On the Persistence of Income Shocks over the Life Cycle: Evidence, Theory, and Implications," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 452-476, July.
    7. Patricia Andreski & Geng Li & Mehmet Zahid Samancioglu & Robert Schoeni, 2014. "Estimates of Annual Consumption Expenditures and Its Major Components in the PSID in Comparison to the CE," American Economic Review, American Economic Association, vol. 104(5), pages 132-135, May.
    8. Strawczynski, Michael, 1994. "Government intervention as a bequest substitute," Journal of Public Economics, Elsevier, vol. 53(3), pages 477-495, March.
    9. Skinner, Jonathan, 1987. "A superior measure of consumption from the panel study of income dynamics," Economics Letters, Elsevier, vol. 23(2), pages 213-216.
    10. Cagetti, Marco, 2003. "Wealth Accumulation over the Life Cycle and Precautionary Savings," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 339-353, July.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:red:sed017:343. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.