Labour supply, retirement, and consumption responses of older Europeans to inheritance receipt

Abstract

This study quantifies individuals’ responses to inheritance receipt in terms of their retirement, labour supply, and consumption decisions. Doing so is relevant for appraising the potential effects of tax and pension reforms, as well as for the assessment of how inheritances contribute to total wealth and to wealth inequality. I start out by developing a simple version of the life cycle model that explains how individuals trade-off between the different possible responses. I test the model using individual panel data from the Survey on Health, Aging, and Retirement in Europe. These data allow accounting for expectations about inheritances and retirement in the analysis. All estimated effects are not significantly different from zero and they indicate absence of large response in terms of labour supply and retirement.