Intergenerational Wealth Transmission
Paper Session
Friday, Jan. 5, 2024 10:15 AM - 12:15 PM (CST)
- Chair: Isabel Z. Martinez, ETH Zurich
Inter Vivos Transfers and Choice of College Major
Abstract
How might inter vivos transfers, financial gifts from living parents to children, affect the amount of career-based earnings uncertainty the children choose to face? Embedding an occupational choice model into a simple overlapping generations framework with altruism, I show children with wealthier parents favor jobs that have riskier income streams relative to their expected earnings because these parents can insure their children against large negative earnings shocks. Using the 1997 cohort from the National Longitudinal Study of Youth, I rank major fields of study according to two measures of earnings uncertainty. Estimates from a multinomial logit model suggest that children of higher income parents select into fields with higher earnings uncertainty. These empirical results are consistent with the theory that inter vivos transfers act as an insurance mechanism for college-aged children. To further this hypothesis, I study first generation college students, a subgroup that faces higher earnings uncertainty. I show that these first generation students are less likely to select into fields where the earnings uncertainty is disproportionately high.Inheritances, Expectations, and Consumption Inequality
Abstract
Over the past half-century, inheritances have grown as a share of national income in many advanced economies and look likely to grow further in the coming decades. Inheritances are both highly unequally distributed across individuals and uncertain in both their size and timing. We estimate a model of wealth accumulation over the lifecycle in the presence of a parental wealth and inheritance process and use it to decompose the impact of inheritances on consumption and wealth inequality and intergenerational mobility over the lifecycle. Inheritances have a minor impact on consumption inequality but are of growing importance for several measures of intergenerational mobility.The Carnegie Elasticity: Behavioral Responses to Sudden Wealth
Abstract
As life expectancy increasing, so is the average age of inheritors. Wealth transfers in the form of inter-vivos gifts are therefore set to become more important. We study behavioral responses to gifts, especially in comparison to comparable inheritances. To this end, we use a panel of individual-level tax records from a Swiss canton, and we study how different wealth shocks affect labor supply, measured as taxable earnings. We distinguish between three types of wealth transfers: inter-vivos gifts, inheritances, and lottery wins, all of which are identifiable in the data. We exploit the fact that the timing and size of inheritances and lottery wins are quasi-random. For gifts, we use several instruments, including a large policy shock caused by an announced, credible threat of future inheritance and gift taxation, which led to “panic gifting”. We find that responses to wealth shocks vary strongly with the source of the shock. For a positive wealth shock of 1,000 CHF, labor supply is reduced by 31 CHF when the source is a lottery win, but only by 17 CHF when resulting from an inheritance. For inter-vivos gifts, we find no statistically significant effect on labor supply. Further analysis suggests that responses to inheritance vary considerably with characteristics of recipients, while no comparable response heterogeneity is apparent for other types of positive wealth shocks.Discussant(s)
Wojciech Kopczuk
,
Columbia University
Marius Brülhart
,
University of Lausanne
JEL Classifications
- H8 - Miscellaneous Issues
- J2 - Demand and Supply of Labor