The Effect of Unexpected Inheritances on Wealth Accumulation: Precautionary Savings or Liquidity Constraints
(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:
https://lup.lub.lu.se/record/36ebc5a1-7f0d-45ea-b532-a5092d5aa020
- author
- Martinello, Alessandro LU
- organization
- publishing date
- 2016
- 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}}, }