Intergenerational transfers: How do they shape the German wealth distribution?

Abstract

This paper uses SOEP data to study the distributional effect of intergenerational transfers on the wealth distribution of German households. Similar to most other central European countries, Germany is likely to face a period of increasing aggregate bequest flows. At the same time, there is an ongoing debate on the distributional implications of such wealth shocks. This study adds to the discussion by providing causal estimates for the effect of transfer receipt on the savings behavior of households. The model allows for dynamic adjustment and variations in the savings behavior over the wealth distribution. I use the estimates to decompose the overall effect of transfers on wealth inequality in the effect of the aggregated transfer volume, the transfer incidence over the wealth distribution and the effect of the savings behavior. The results are very much in line with the literature, indicating that transfers tend to equalize wealth inequality, despite minor variations in the savings behavior over the wealth distribution and despite a strong relationship between initial household wealth and transfer accrual.