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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.
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author
organization
publishing date
type
Working Paper
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 Universtiy
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
2016-04-20 16:04:06
@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},
  keyword      = {Inheritance,Savings,Liquidity constraints,Buffer-stock model,Housing equity,Lifecycle,Precautionary savings,Long-run,D14 ,D91 ,E21,G11},
  language     = {eng},
  number       = {2016:7},
  pages        = {25},
  publisher    = {ARRAY(0x9689860)},
  series       = {Working Papers},
  title        = {The Effect of Unexpected Inheritances on Wealth Accumulation: Precautionary Savings or Liquidity Constraints},
  year         = {2016},
}