Skip to main content

Lund University Publications

LUND UNIVERSITY LIBRARIES

The Effect of Unexpected Inheritances on Wealth Accumulation: Precautionary Savings or Liquidity Constraints

Martinello, Alessandro LU (2016) In Working Papers
Abstract
Combining a Danish population panel of yearly administrative wealth reports with the unexpected timing of parental deaths, I show that heirs deplete the majority of their inheritance within ten years. However, while liquid assets quickly converge to their pre-inheritance levels, consistently with the predictions of a buffer-stock model of consumption, investments in housing and financial markets persist over time. Heirs exploit inheritances to accumulate housing equity if young, and precautionary savings if liquidity constrained. By estimating the causal effect of inheritance on wealth accumulation in the long run, this paper shows that specific wealth components serve different coexisting saving strategies.
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Inheritance, Savings, Liquidity constraints, Buffer-stock model, Housing equity, Lifecycle, Precautionary savings, Long-run, D14, D91, E21, G11
in
Working Papers
issue
2016:7
pages
25 pages
publisher
Department of Economics, Lund University
language
English
LU publication?
yes
id
36ebc5a1-7f0d-45ea-b532-a5092d5aa020
alternative location
http://swopec.hhs.se/lunewp/abs/lunewp2016_007.htm
date added to LUP
2016-04-20 16:04:06
date last changed
2018-11-21 21:23:03
@misc{36ebc5a1-7f0d-45ea-b532-a5092d5aa020,
  abstract     = {{Combining a Danish population panel of yearly administrative wealth reports with the unexpected timing of parental deaths, I show that heirs deplete the majority of their inheritance within ten years. However, while liquid assets quickly converge to their pre-inheritance levels, consistently with the predictions of a buffer-stock model of consumption, investments in housing and financial markets persist over time. Heirs exploit inheritances to accumulate housing equity if young, and precautionary savings if liquidity constrained. By estimating the causal effect of inheritance on wealth accumulation in the long run, this paper shows that specific wealth components serve different coexisting saving strategies.}},
  author       = {{Martinello, Alessandro}},
  keywords     = {{Inheritance; Savings; Liquidity constraints; Buffer-stock model; Housing equity; Lifecycle; Precautionary savings; Long-run; D14; D91; E21; G11}},
  language     = {{eng}},
  note         = {{Working Paper}},
  number       = {{2016:7}},
  publisher    = {{Department of Economics, Lund University}},
  series       = {{Working Papers}},
  title        = {{The Effect of Unexpected Inheritances on Wealth Accumulation: Precautionary Savings or Liquidity Constraints}},
  url          = {{http://swopec.hhs.se/lunewp/abs/lunewp2016_007.htm}},
  year         = {{2016}},
}