Long-Run Saving Dynamics: Evidence from Unexpected Inheritances

Jeppe Druedahl, Alessandro Martinello

Research output: Contribution to journalJournal articleResearchpeer-review

8 Citations (Scopus)
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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 towards the path established before parental death, with only a 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.
Original languageEnglish
JournalThe Review of Economics and Statistics
Volume104
Issue number5
Pages (from-to)1079-1095
ISSN0034-6535
DOIs
Publication statusPublished - 2022

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