Bequest Motives and the Social Security Notch

Siha Lee and Kegon Tan

Review of Economic Dynamics, 2023, vol. 51, 888-914

Abstract: Bequests may be a key driver of late life savings behavior and more broadly, a determinant of intergenerational inequality. However, distinguishing bequest motives from precautionary savings is challenging. Using data from the Health and Retirement Study, we exploit an unanticipated change in Social Security benefits, commonly called the Social Security Notch, as an instrument to identify the effect of benefits on bequests. We match data moments generated by the Notch with a model of late life savings behavior that accounts for mortality risk and unobserved expenditure shocks to identify bequest motives. The model is used to decompose the importance of bequest motives as a driver of late life savings by comparing asset profiles with and without utility from bequests. We find that roughly 40% of accumulated assets and bequests are attributable to bequest motives among retirees. Our policy counterfactual features a more progressive Social Security benefits schedule that reduces benefits for the richest retirees. We show that although wealth declines, consumption remains largely unchanged since wealth generated by bequest motives acts as a cushion against benefit reduction. (Copyright: Elsevier)

Keywords: bequests; late life savings; assets; social security (search for similar items in EconPapers)
JEL-codes: D3 D91 H55 J14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2023.09.001
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Bequest Motives and the Social Security Notch" (2023)
Working Paper: Bequest Motives and the Social Security Notch (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:22-78

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2023.09.001

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().