TY - JOUR

T1 - Long-Run Saving Dynamics: Evidence from Unexpected Inheritances

AU - Druedahl, Jeppe

AU - Martinello, Alessandro

PY - 2022

Y1 - 2022

N2 - We exploit inheritance episodes to provide novel causal evidence on the long-run effects of a large financial windfall on saving behavior. For identification, we combine a longitudinal panel of administrative wealth reports with variation in the timing of sudden, unexpected parental deaths. We show that after inheritance net worth converges towards the path established before parental death, with only a third of the initial windfall remaining after nine years. We interpret these findings through the lens of a generalized consumption-saving framework. To quantitatively replicate this behavior, life-cycle consumption models require impatient consumers and strong precautionary saving motives.

AB - We exploit inheritance episodes to provide novel causal evidence on the long-run effects of a large financial windfall on saving behavior. For identification, we combine a longitudinal panel of administrative wealth reports with variation in the timing of sudden, unexpected parental deaths. We show that after inheritance net worth converges towards the path established before parental death, with only a third of the initial windfall remaining after nine years. We interpret these findings through the lens of a generalized consumption-saving framework. To quantitatively replicate this behavior, life-cycle consumption models require impatient consumers and strong precautionary saving motives.

U2 - 10.1162/rest_a_01004

DO - 10.1162/rest_a_01004

M3 - Journal article

VL - 104

SP - 1079

EP - 1095

JO - Review of Economics and Statistics

JF - Review of Economics and Statistics

SN - 0034-6535

IS - 5

ER -