Long-Run Saving Dynamics: Evidence from Unexpected Inheritances
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Submitted manuscript, 1.37 MB, PDF document
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.
|The Review of Economics and Statistics
|Published - 2022
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