Long-Run Saving Dynamics: Evidence from Unexpected Inheritances

CEBI Working Paper No. 02/17

90 Pages Posted: 2 Feb 2018

See all articles by Jeppe Druedahl

Jeppe Druedahl

University of Copenhagen - Department of Economics

Alessandro Martinello

Lund University - Department of Economics; Danish National Institute of Social Research (SFI)

Date Written: 2017

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

JEL Classification: D14, D91, E21, G11, G4

Suggested Citation

Druedahl, Jeppe and Martinello, Alessandro, Long-Run Saving Dynamics: Evidence from Unexpected Inheritances (2017). CEBI Working Paper No. 02/17, Available at SSRN: https://ssrn.com/abstract=3109294 or http://dx.doi.org/10.2139/ssrn.3109294

Jeppe Druedahl (Contact Author)

University of Copenhagen - Department of Economics ( email )

Ă˜ster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Alessandro Martinello

Lund University - Department of Economics ( email )

P.O. Box 7082
S-220 07 Lund
Sweden

Danish National Institute of Social Research (SFI) ( email )

Herluf Trolles Gade 11
DK-1052
Copenhagen K, DK-1052
Denmark

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