Time to Give: Poor Health as a Trigger for Inter-Vivos Transfers

Abstract

In this study we investigate the role of health status as a predictor of wealth transfers between households (inter-vivos transfers). To that end, we use high-quality administrative data for the whole population of the Netherlands. Using data on hospital intakes, we construct a measure of health shocks which we use to carry out an event study. This method exploits the randomness in the exact timing of the shock to identify causality. Our results show a significant and positive increase in the probability of giving during the years following a health shock. Further analyses indicate that: 1) The baseline result does not reflect the presence of an exchange motive for giving; 2) There is evidence of the use of inter-vivos transfers as an instrument to avoid inheritance taxes. Our results have relevant implications for social policies that redistribute wealth across individuals as well as for the design of gift and inheritance tax schedules.

Keywords: Health shocks, wealth transfers, exchange motive, gift and inheritance taxation, event study, altruism, warm-glow giving.