IDEAS home Printed from https://ideas.repec.org/p/upf/upfgen/667.html
   My bibliography  Save this paper

The marginal propensity to spend on adult children

Author

Listed:
  • Joseph Altonji
  • Ernesto Villanueva

Abstract

We examine how much of an extra dollar of parental lifetime resources will ultimately be passed on to adult children in the form of inter vivos transfers and bequests. We infer bequests from the stock of wealth late in life. We use mortality rates and age specific estimates of the response of transfers and wealth to permanent income to compute the expected present discounted values of these responses to permanent income. Our estimates imply parents pass on between 2 and 3 cents out of an extra dollar of expected lifetime resources in bequests and about 2 cents in transfers. The estimates increase with parental income and are smaller for nonwhites. They imply that about 15 percent of the effect of parental income on lifetime resources of adult children is through transfers and bequests and about 85 percent is through the intergenerational correlation in earnings, although these estimates are sensitive to assumptions about the intergenerational earnings correlation, taxes, and the number of children. We compare our estimates to the implications of alternative computable benchmark models of savings behavior in order to assess the likely importance of intended bequests for the wealth/income relationship.

Suggested Citation

  • Joseph Altonji & Ernesto Villanueva, 2003. "The marginal propensity to spend on adult children," Economics Working Papers 667, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:667
    as

    Download full text from publisher

    File URL: https://econ-papers.upf.edu/papers/667.pdf
    File Function: Whole Paper
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Arrondel, Luc & Laferrere, Anne, 2001. "Taxation and wealth transmission in France," Journal of Public Economics, Elsevier, vol. 79(1), pages 3-33, January.
    2. Christopher D Carroll, 1997. "Why Do the Rich Save So Much?," Economics Working Paper Archive 388, The Johns Hopkins University,Department of Economics.
    3. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-788, September.
    4. Ernesto Villanueva, 2001. "Parental altruism under imperfect information: Theory and evidence," Economics Working Papers 566, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2002.
    5. Paul L. Menchik, 1980. "Primogeniture, Equal Sharing, and the U.S. Distribution of Wealth," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 299-316.
    6. Solon, Gary, 1999. "Intergenerational mobility in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 29, pages 1761-1800, Elsevier.
    7. Michael D. Hurd & James P. Smith, 2001. "Anticipated and Actual Bequests," NBER Chapters, in: Themes in the Economics of Aging, pages 357-392, National Bureau of Economic Research, Inc.
    8. McGarry, K. & Schoeni, R.F., 1995. "Transfer Behavior With the Family: Results from the Asset and Health Dynamics Survey," Papers 95-09, RAND - Labor and Population Program.
    9. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 257-298, National Bureau of Economic Research, Inc.
    10. Francine D. Blau & John W. Graham, 1990. "Black-White Differences in Wealth and Asset Composition," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 321-339.
    11. Cox, Donald & Rank, Mark R, 1992. "Inter-vivos Transfers and Intergenerational Exchange," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 305-314, May.
    12. Laitner, John & Ohlsson, Henry, 2001. "Bequest motives: a comparison of Sweden and the United States," Journal of Public Economics, Elsevier, vol. 79(1), pages 205-236, January.
    13. Corrado Benassi & Antonello E. Scorcu, 2003. "Indexation Rules, Risk Aversion and Imperfect Information," Manchester School, University of Manchester, vol. 71(3), pages 330-340, June.
    14. Behrman, Jere R & Pollak, Robert A & Taubman, Paul, 1982. "Parental Preferences and Provision for Progeny," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 52-73, February.
    15. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-1198, December.
    16. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, "undated". "The Effects of Income and Wealth on Time and MOney Transfers Between Parents and Children," IPR working papers 96-5, Institute for Policy Resarch at Northwestern University.
    17. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-321, May.
    18. Arrondel, Luc & Masson, Andre, 2006. "Altruism, exchange or indirect reciprocity: what do the data on family transfers show?," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 14, pages 971-1053, Elsevier.
    19. James D. Adams, 1980. "Personal Wealth Transfers," The Quarterly Journal of Economics, Oxford University Press, vol. 95(1), pages 159-179.
    20. Barsky R. & Bound J. & Charles K.K. & Lupton J.P., 2002. "Accounting for the Black-White Wealth Gap: A Nonparametric Approach," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 663-673, September.
    21. Engen, Eric & Gale, William & Uccello, Cori, 1999. "The Adequacy of Household Saving," MPRA Paper 56442, University Library of Munich, Germany.
    22. Robert Haveman & Barbara Wolfe, 1995. "The Determinants of Children's Attainments: A Review of Methods and Findings," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1829-1878, December.
    23. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
    24. Michael Hurd & James P. Smith, 2002. "Expected Bequests and Their Distribution," NBER Working Papers 9142, National Bureau of Economic Research, Inc.
    25. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 743-768.
    26. McGarry, Kathleen, 1999. "Inter vivos transfers and intended bequests," Journal of Public Economics, Elsevier, vol. 73(3), pages 321-351, September.
    27. Laitner, John, 1993. "Intergenerational and interhousehold economic links," Handbook of Population and Family Economics, in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 5, pages 189-238, Elsevier.
    28. Kathleen McGarry & Robert F. Schoeni, 1994. "Transfer Behavior: Measurement and the Redistribution of Resources within the Family," NBER Working Papers 4607, National Bureau of Economic Research, Inc.
    29. Wilhelm, Mark O, 1996. "Bequest Behavior and the Effect of Heirs' Earnings: Testing the Altruistic Model of Bequests," American Economic Review, American Economic Association, vol. 86(4), pages 874-892, September.
    30. Rosenzweig, Mark R & Wolpin, Kenneth I, 1994. "Parental and Public Transfers to Young Women and Their Children," American Economic Review, American Economic Association, vol. 84(5), pages 1195-1212, December.
    31. Kotlikoff, Laurence J & Summers, Lawrence H, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 706-732, August.
    32. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
    33. McGarry, K & Schoeni, R-F, 1996. "Measurement and the Redistribution of Resources Within the Family," Papers 96-11, RAND - Reprint Series.
    34. Jere R. Behrman & Mark R. Rosenzweig, 2006. "Parental Wealth and Adult Children's Welfare in Marriage," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 496-509, August.
    35. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
    36. Juster, F. Thomas & Smith, James P. & Stafford, Frank, 1999. "The measurement and structure of household wealth," Labour Economics, Elsevier, vol. 6(2), pages 253-275, June.
    37. Jere R. Behrman & Mark R. Rosenzweig, 2004. "Parental Allocations to Children: New Evidence on Bequest Differences among Siblings," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 637-640, May.
    38. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
    39. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1997. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1121-1166, December.
    40. Joseph Altonji & Ulrich Doraszelski & Lewis M. Segal, 2000. "Black/white differences in wealth," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 24(Q I), pages 38-50.
    41. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 508-546, June.
    42. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    43. Robert M. Hauser, 1993. "Trends in College Entry among Whites, Blacks, and Hispanics," NBER Chapters, in: Studies of Supply and Demand in Higher Education, pages 61-120, National Bureau of Economic Research, Inc.
    44. Laurence J. Kotlikoff, 1989. "What Determines Savings?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611872, December.
    45. Stephen V. Cameron & James J. Heckman, 2001. "The Dynamics of Educational Attainment for Black, Hispanic, and White Males," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 455-499, June.
    46. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Intergenerational Support and the Life-Cycle Incomes of Young Men and Their Parents: Human Capital Investments, Coresidence, and Intergenerational Financial Transfers," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 84-112, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Francisco Alvarez-Cuadrado & Ngo Van Long, 2012. "Envy and Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 949-973, September.
    2. Alvarez-Cuadrado, Francisco & Van Long, Ngo, 2011. "The relative income hypothesis," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1489-1501, September.
    3. Frank Cowell & Dirk Van de gaer, 2017. "Condorcet was Wrong, Pareto was Right: Families, Inheritance and Inequality," STICERD - Public Economics Programme Discussion Papers 34, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    4. Uta Bolt & Eric French & Jamie Hentall Maccuish & Cormac O’Dea, 2018. "Intergenerational Altruism and Transfers of Time and Money: A Life-cycle Perspective," Working Papers wp379, University of Michigan, Michigan Retirement Research Center.
    5. Fang Yang, 2005. "Consumption Along the Life Cycle: How Different is Housing?," 2005 Meeting Papers 718, Society for Economic Dynamics.
    6. Jinkook Lee & Drystan Phillips, 2011. "Income and Poverty among Older Koreans Relative Contributions of and Relationship between Public and Family Transfers," Working Papers WR-852, RAND Corporation.
    7. Siha Lee & Kegon Teng Kok Tan, 2023. "Bequest Motives and the Social Security Notch," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 888-914, December.
    8. Luigi Ventura & Charles Yuji Horioka, 2020. "The wealth decumulation behavior of the retired elderly in Italy: the importance of bequest motives and precautionary saving," Review of Economics of the Household, Springer, vol. 18(3), pages 575-597, September.
    9. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    10. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    11. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    12. Bianchi Suzanne, 2011. "Family Data and Research in the Health and Retirement Study," Forum for Health Economics & Policy, De Gruyter, vol. 14(3), pages 1-15, April.
    13. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis.
    14. Yang, Fang, 2013. "Social security reform with impure intergenerational altruism," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 52-67.
    15. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "A Permanent Income Version of the Relative Income Hypothesis," CESifo Working Paper Series 2361, CESifo.
    16. Justine Hastings & Ebonya Washington, 2010. "The First of the Month Effect: Consumer Behavior and Store Responses," NBER Chapters, in: Income Taxation, Trans-Atlantic Public Economics Seminar (TAPES), pages 142-162, National Bureau of Economic Research, Inc.
    17. Fang Yang, 2009. "Consumption over the Life Cycle: How Different is Housing?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 423-443, July.
    18. Francisco Alvarez‐Cuadrado & Mayssun El‐Attar Vilalta, 2018. "Income Inequality and Saving," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 80(6), pages 1029-1061, December.
    19. Jessamyn Schaller & Chase Eck, 2019. "Adverse Life Events and Intergenerational Transfers," Upjohn Working Papers 19-309, W.E. Upjohn Institute for Employment Research.
    20. Sule Alan & Kadir Atalay & Thomas F. Crossley, 2015. "Do the Rich Save More? Evidence from Canada," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(4), pages 739-758, December.
    21. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.
    22. Kawiński, Marcin, 2015. "Przegląd teorii finansów gospodarstw domowych w kontekście współczesnych uwarunkowań polityki publiczne," Studia z Polityki Publicznej / Public Policy Studies, Warsaw School of Economics, vol. 2(1), pages 1-19, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marta Melguizo Garde, 2007. "La motivación de las transmisiones lucrativas entre generaciones de una familia: modelos teóricos y evidencia empírica," Hacienda Pública Española / Review of Public Economics, IEF, vol. 181(2), pages 81-118, June.
    2. Mauro Baranzini, 2005. "Modigliani's life-cycle theory of savings fifty years later," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 58(233-234), pages 109-172.
    3. Mauro Baranzini, 2005. "Modigliani's life-cycle theory of savings fifty years later," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 58(233-234), pages 109-172.
    4. Stefan Hochguertel & Henry Ohlsson, 2009. "Compensatory inter vivos gifts," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 993-1023.
    5. Katarina Nordblom & Henry Ohlsson, 2011. "Bequests, gifts, and education: links between intergenerational transfers," Empirical Economics, Springer, vol. 40(2), pages 343-358, April.
    6. Arrondel, Luc & Masson, Andre, 2006. "Altruism, exchange or indirect reciprocity: what do the data on family transfers show?," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 14, pages 971-1053, Elsevier.
    7. Elin Halvorsen & Thor O. Thoresen, 2011. "Parents' Desire to Make Equal Inter Vivos Transfers," CESifo Economic Studies, CESifo, vol. 57(1), pages 121-155, March.
    8. Audrey Light & Kathleen McGarry, 2004. "Why Parents Play Favorites: Explanations for Unequal Bequests," American Economic Review, American Economic Association, vol. 94(5), pages 1669-1681, December.
    9. McGarry, Kathleen, 1999. "Inter vivos transfers and intended bequests," Journal of Public Economics, Elsevier, vol. 73(3), pages 321-351, September.
    10. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.
    11. Francois-Charles Wolff & Seymour Spilerman & Claudine Attias-Donfut, 2005. "Do Parents Help More their Less Well-Off Children? Evidence from a Sample of Migrants to France," Microeconomics 0504001, University Library of Munich, Germany.
    12. Charles Yuji Horioka, 2002. "Are the Japanese Selfish, Altruistic or Dynastic?," The Japanese Economic Review, Japanese Economic Association, vol. 53(1), pages 26-54, March.
    13. Wojciech Kopczuk & Joseph P. Lupton, 2007. "To Leave or Not to Leave: The Distribution of Bequest Motives," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 207-235.
    14. Wolff, Francois-Charles & Laferrere, Anne, 2006. "Microeconomic models of family transfers," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 13, pages 889-969, Elsevier.
    15. Anna Christina D'Addio, 2007. "Intergenerational Transmission of Disadvantage: Mobility or Immobility Across Generations?," OECD Social, Employment and Migration Working Papers 52, OECD Publishing.
    16. Fernandes, A., 2000. "Altruism with Endogenous Labor Supply," Papers 0002, Centro de Estudios Monetarios Y Financieros-.
    17. Erixson, Oscar & Ohlsson, Henry, 2014. "Estate division: Equal sharing as choice, social norm, and legal requirement," Working Paper Series 2014:1, Uppsala University, Department of Economics.
    18. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Savings After Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 177-204, October.
    19. Laitner, John & Ohlsson, Henry, 2001. "Bequest motives: a comparison of Sweden and the United States," Journal of Public Economics, Elsevier, vol. 79(1), pages 205-236, January.
    20. Joseph G. Altonji & Ulrich Doraszelski, 2005. "The Role of Permanent Income and Demographics in Black/White Differences in Wealth," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).

    More about this item

    Keywords

    Bequests; intervivos transfers; permanent income;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:667. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://www.econ.upf.edu/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.