Long-Run Saving Dynamics: Evidence from Unexpected Inheritances

Jeppe Druedahl and Alessandro Martinello

The Review of Economics and Statistics, 2022, vol. 104, issue 5, 1079-1095

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.

Date: 2022
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Related works:
Working Paper: Long-Run Saving Dynamics: Evidence from Unexpected Inheritances (2018)
Working Paper: Long-Run Saving Dynamics: Evidence from Unexpected Inheritances (2018)
Working Paper: Long-Run Saving Dynamics: Evidence from Unexpected Inheritances (2018)
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