Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

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

Jeppe Druedahl () and Alessandro Martinello ()
Additional contact information
Jeppe Druedahl: University of Copenhagen, Department of Economics, Postal: Ă–ster Farimagsgade 5, Copenhagen, Denmark
Alessandro Martinello: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

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

JEL-codes: D14; D91; E21; G11

42 pages, First version: April 18, 2016. Revised: September 27, 2017.

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