Abstract
Drawing on detailed panel data, we find that gifts and inheritances substantially increase households’ private pension savings in accounts which are costly or impossible to withdraw prematurely. Back-of-the-envelope calculations suggest that (a) the average difference in bequest-induced private pension savings between heirs and non-heirs accrues to more than 40,000 EUR at retirement and that (b) it would take an average non-heir household roughly 14 years to match this gap. The sizable difference in private pension savings between heirs and non-heirs persists when we take into account other investments of heirs and non-heirs potentially intended to provide for old age. Our evidence supports the impact of gifts and inheritances on inequality in retirement wealth highlighted in recent research on intergenerational justice. We discuss several policy implications of our results.
Highlights
Introduction and related researchIn most developed economies, gifts and inheritances play a major role in sustaining and increasing household wealth.1 Early work by Kotlikoff and Summers (1981) and Kotlikoff (1988) documents that intergenerational wealth transfers account for a larger proportion of households’ overall wealth than prescribed by Modigliani’s life-cycle hypothesis
In the vein of Börsch-Supan et al (2016), who highlight that wrong expectations about future pensions are a potential reason for under-saving for old age, we run an additional analysis, in which we focus on the potential impact of inheritances which the household under review anticipates, but has not received yet
Even when we control for the above-mentioned changes in household demographics during our period under review, we find that roughly 8 cents out of every euro received in the three-year period flow into the private pension saving accounts of households and confirm that this remains a highly statistically significant fraction of the average inheritance
Summary
Univariate evidence As an initial assessment of the impact of receiving a gift or inheritance on private pension saving, we follow Abadie and Imbens (2011) and calculate the average treatment effect (ATE). We calculate ATEs at two points in time: at wave 1, i.e. before any gift or inheritance is received by households in the treatment group, and at wave 2 after these households have received a gift or inheritance of at least 10,000 euros
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