Bequests and Aggregate Wealth Accumulation in Germany

Anette Reil-Held ()
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Anette Reil-Held: Mannheim Research Institute for the Economics of Aging (MEA) and Sonderforschungsbereich 504, Postal: L 13,15 D-68131 Mannheim

No 97-42, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: This paper deals with the impact of bequests on the accumulation of private wealth in Germany. In order to address the question which proportion of the existing wealth is generated by intergenerational bequests,two data sets are evaluated by taking three different approachers. Firstly, the so called Flow-of-Bequest method from Kotlikoff and Summers is applied, in which a yearly flow of transfers is assumed to accumulate into a stock of transfer wealth. In the original approach the assumption of an exponential growth of the economy was made. This yields a share of intergenerationally inherited wealth on total wealth of about 35 % in Germany, a magnitude which is known for other countries. However, at a closer look the underlying assumptions do not seem to be appropriate for Germany because they neglect the special circumstances of the postwar period. Therefore the original Flow-of-Bequest method was replaced by a more detailed version, evaluating data about the yearly flow of bequests. The results of this modified Flow-of-Bequest method is a share of intergenerationally inherited wealth of about 10 % only, which is surprisingly low in comparison to other countries. To confirm this results a further method was developed based on a regression model of wealth as a function of socio-economic parameters. The model is subsequently used to compute the wealth of the nation firstly with bequests included, and secondly with bequests set to zero. A comparison of the two results confirms a share of intergenerationally inherited wealth in the order of 10 %, which makes this result plausible for Germany in the eighties. However, in future this ratio can be expected to increase.

Pages: 21 pages
Date: 1997-12-01
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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