Bequests, Inheritances and Family Traditions

CRR WP 2005-09

71 Pages Posted: 21 Jun 2008

See all articles by Donald Cox

Donald Cox

Boston College - Department of Economics

Oded Stark

University of Bonn; University of Warsaw; University of Tuebingen; Georgetown University

Date Written: August 2005

Abstract

Do "family traditions" influence bequest behavior? If an individual receives an inheritance from his parents, is he more likely to give a bequest to his children, even after controlling for the boost in wealth conferred by the inheritance? Family traditions are pertinent to a host of issues connected with intergenerational transfers: Ricardian equivalence and crowding out, the role of bequests in wealth accumulation, and the responsiveness of bequests to tax changes. Traditions also matter for issues related to behavioral economics, such as mental accounts, social learning, and the intergenerational transmission of values. Partially due to the paucity of data, few studies to date have analyzed bequests in conjunction with inheritances. We draw upon the U.S. Health and Retirement Survey, one of the few data sets with comprehensive information on both bequests and inheritances. We find that receipt of inheritances and intended bequests are positively and significantly related (both behaviorally and statistically) even after controlling for a host of household characteristics, most importantly household net worth. Discerning how to label this partial correlation is a daunting task. We provide a precise definition of "family traditions" and we show how they differ from other channels of influence. Our explanation of the nuances of traditions hinges on measuring the flexibility of bequest plans when wealth or other circumstances change. (For instance, will a wealth shortfall have a smaller impact on an inheritor who may be attempting to carry on a family tradition?) We find evidence in support of the idea that the propensity to bequeath out of wealth differs depending upon whether current wealth is large or small relative to inheritances received. We conclude that economists interested in intergenerational transfers should pay attention to the role of family traditions in bequest behavior.

Keywords: inheritances, family traditions, bequests, wealth

JEL Classification: A14, D10, I30, J13, J14, J26

Suggested Citation

Cox, Donald and Stark, Oded, Bequests, Inheritances and Family Traditions (August 2005). CRR WP 2005-09. Available at SSRN: https://ssrn.com/abstract=1148982 or http://dx.doi.org/10.2139/ssrn.1148982

Donald Cox (Contact Author)

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Oded Stark

University of Bonn ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

University of Warsaw ( email )

Dluga Street 44/50
Warsaw, 00-241
Poland

University of Tuebingen

Wilhelmstr. 19
Tuebingen, Baden Wuerttemberg 72074
Germany

Georgetown University ( email )

Washington, DC 20057
United States

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