(Not) Anticipating Predictable Inheritances

Abstract

We study whether people spend in anticipation of predictable inheritances from elderly parents or act as if inheritances are unpredictable windfalls. Implying incomplete anticipation, children increase car purchases by 36 percent after non-sudden parental death. Moreover, pre-inheritance spending, labor supply, and borrowing behavior indicate little to no anticipation. Standard life-cycle explanations (liquidity constraints, uncertainty, news, mortality beliefs) do not seem to explain the incomplete anticipation, suggesting behavioral or strategic explanations (mental accounting, norms, inheritance division). Given the size of inheritances, our results imply a high-stakes deviation from life-cycle consumption smoothing. Moreover, incomplete anticipation reduces the value of parental inheritances.