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Long-Run Saving Dynamics: Evidence from Unexpected Inheritances

Author

Listed:
  • Jeppe Druedahl

    (University of Copenhagen)

  • Alessandro Martinello

    (Lund University)

Abstract

We exploit inheritance episodes to provide novel causal evidence on long-run saving dynamics. For identification, we combine a panel of administrative wealth reports with the unexpected timing of sudden parental deaths. After inheritance, net worth converges towards the path established before parental death, and convergence is faster for liquid assets. Using a generalized structural framework, we show that buffer-stock and two-asset models can fit these dynamics, but only if agents are impatient enough and have both strong precautionary and post-retirement saving motives. Relative to standard calibrations, such agents have at least 50 percent higher precautionary savings for given total wealth.

Suggested Citation

  • Jeppe Druedahl & Alessandro Martinello, 2018. "Long-Run Saving Dynamics: Evidence from Unexpected Inheritances," 2018 Meeting Papers 390, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:390
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    Cited by:

    1. Korom, Philipp, 2016. "Inherited advantage: The importance of inheritance for private wealth accumulation in Europe," MPIfG Discussion Paper 16/11, Max Planck Institute for the Study of Societies.
    2. Elinder, Mikael & Erixson, Oscar & Waldenström, Daniel, 2018. "Inheritance and wealth inequality: Evidence from population registers," Journal of Public Economics, Elsevier, vol. 165(C), pages 17-30.
    3. Fontenay, Sébastien & Tojerow, Ilan, 2020. "Work Disability after Motherhood and How Paternity Leave Can Help," IZA Discussion Papers 13756, Institute of Labor Economics (IZA).
    4. Bäckman, Claes & Khorunzhina, Natalia, 2020. "Interest-Only Mortgages and Consumption Growth: Evidence from a Mortgage Market Reform," MPRA Paper 98524, University Library of Munich, Germany.
    5. Andreas Fagereng & Martin B. Holm & Gisle J. Natvik, 2021. "MPC Heterogeneity and Household Balance Sheets," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(4), pages 1-54, October.
    6. Wolfgang Frimmel & Martin Halla & Jörg Paetzold & Julia Schmieder, 2020. "Health of Elderly Parents, Their Children's Labor Supply, and the Role of Migrant Care Workers," Discussion Papers of DIW Berlin 1902, DIW Berlin, German Institute for Economic Research.
    7. Emily Nix & Martin Eckhoff Andresen, 2019. "What Causes the Child Penalty? Evidence from Same Sex Couples and Policy Reforms," Discussion Papers 902, Statistics Norway, Research Department.
    8. Wolfgang Frimmel & Martin Halla & Joerg Paetzold & Julia Schmieder, 2020. "Health of Elderly Parents, their Children's Labor Supply, and the Role of Migrant Care Workers," Economics working papers 2020-18, Department of Economics, Johannes Kepler University Linz, Austria.
    9. Henri Salokangas, 2021. "Exploring the labor market consequences of psychiatric disorders: An event study approach," Discussion Papers 148, Aboa Centre for Economics.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • 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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

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