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The Marginal Propensity to Spend on Adult Children

Joseph G. Altonji

Yale University - Economic Growth Center; National Bureau of Economic Research (NBER)

Ernesto Villanueva

Bank of Spain

June 5, 2003

UPF Economics and Business Working Paper No. 667

We examine how much of an extra dollar of parental lifetime resources will ultimately be passed on to adult children in the form of inter vivos transfers and bequests. We infer bequests from the stock of wealth late in life. We use mortality rates and age specific estimates of the response of transfers and wealth to permanent income to compute the expected present discounted values of these responses to permanent income. Our estimates imply parents pass on between 2 and 3 cents out of an extra dollar of expected lifetime resources in bequests and about 2 cents in transfers. The estimates increase with parental income and are smaller for nonwhites. They imply that about 15 percent of the effect of parental income on lifetime resources of adult children is through transfers and bequests and about 85 percent is through the intergenerational correlation in earnings, although these estimates are sensitive to assumptions about the intergenerational earnings correlation, taxes, and the number of children. We compare our estimates to the implications of alternative computable benchmark models of savings behavior in order to assess the likely importance of intended bequests for the wealth/income relationship.

Number of Pages in PDF File: 62

Keywords: Bequests, intervivos transfers, permanent income

JEL Classification: D1, D31, D91, E21

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Date posted: August 30, 2003  

Suggested Citation

Altonji, Joseph G. and Villanueva, Ernesto, The Marginal Propensity to Spend on Adult Children (June 5, 2003). UPF Economics and Business Working Paper No. 667. Available at SSRN: http://ssrn.com/abstract=428144 or http://dx.doi.org/10.2139/ssrn.428144

Contact Information

Joseph G. Altonji
Yale University - Economic Growth Center ( email )
Box 208269
New Haven, CT 06520-8269
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Ernesto Villanueva (Contact Author)
Bank of Spain ( email )
Alcala 50
28014 Madrid
+ 34 91 338 6064 (Phone)
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