Long-Run Saving Dynamics: Evidence from Unexpected Inheritances

Long-Run Saving Dynamics: Evidence from Unexpected Inheritances. Druedahl, J. & Martinello, A. The Review of Economics and Statistics, 104(5):1079–1095, September, 2022.

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We exploit inheritance episodes to provide novel causal evidence on the long-run effects of a large financial windfall on saving behavior. For identification, we combine a longitudinal panel of administrative wealth reports with variation in the timing of sudden, unexpected parental deaths. We show that after inheritance, net worth converges toward the path established before parental death, with only one-third of the initial windfall remaining after nine years. We interpret these findings through the lens of a generalized consumption-saving framework. To quantitatively replicate this behavior, life-cycle consumption models require impatient consumers and strong precautionary saving motives.

@article{DruedahlMartinello2022,
  title = {Long-Run Saving Dynamics: Evidence from Unexpected Inheritances},
  author = {Druedahl, Jeppe and Martinello, Alessandro},
  year = {2022},
  month = sep,
  journal = {The Review of Economics and Statistics},
  volume = {104},
  number = {5},
  pages = {1079--1095},
  doi = {10.1162/rest_a_01004},
  url = {https://doi.org/10.1162/rest_a_01004},
  abstract = {We exploit inheritance episodes to provide novel causal evidence on the long-run effects of a large financial windfall on saving behavior. For identification, we combine a longitudinal panel of administrative wealth reports with variation in the timing of sudden, unexpected parental deaths. We show that after inheritance, net worth converges toward the path established before parental death, with only one-third of the initial windfall remaining after nine years. We interpret these findings through the lens of a generalized consumption-saving framework. To quantitatively replicate this behavior, life-cycle consumption models require impatient consumers and strong precautionary saving motives.},
  keywords = {Determinants of Wealth and Wealth Inequality,Intergenerational Wealth}
}

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