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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2016:7:
Long-Run Saving Dynamics: Evidence from Unexpected Inheritances

Jeppe Druedahl () and Alessandro Martinello ()

Abstract: We exploit inheritance episodes to provide novel causal evidence on long-run saving dynamics. For identification, we combine a panel of administrative wealth reports with the unexpected timing of sudden parental deaths. After inheritance, net worth converges towards the path established before parental death, and convergence is faster for liquid assets. Using a generalized structural framework, we show that buffer-stock and two-asset models can fit these dynamics, but only if agents are impatient enough and have both strong precautionary and post-retirement saving motives. Relative to standard calibrations, such agents have at least 50 percent higher precautionary savings for given total wealth.

Keywords: Inheritance; saving dynamics; consumption; buffer-stock; structural; causal; convergence; precautionary; retirement; (follow links to similar papers)

JEL-Codes: D14; D91; E21; G11; G40; (follow links to similar papers)

42 pages, April 18, 2016, Revised September 27, 2017

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