Bequest

Abstract: The issue of whether higher lifetime income households save a larger fraction of their income is an important factor in the evaluation of tax and macroeconomic policy Despite an outpouring of research on this topic in the 1950s and 1960s, the question remains unresolved and has since received little attention This paper revisits the issue, using new empirical methods and the Panel Study on Income Dynamics, the Survey of Consumer Finances, and the Consumer Expenditure Survey We first consider the various ways in which life cycle models can be altered to generate differences in saving rates by income groups: differences in Social Security benefits, different time preference rates, non-homothetic preferences, bequest motives, uncertainty, and consumption floors Using a variety of instruments for lifetime income, we find a strong positive relationship between personal saving rates and lifetime income The data do not support theories relying on time preference rates, non-homothetic preferences, or variations in Social Security benefits Instead, the evidence is consistent with models in which precautionary saving and bequest motives drive variations in saving rates across income groups Finally, we illustrate how models that assume a constant rate of saving across income groups can yield erroneous predictions

Abstract: Although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation, our understanding of bequest motives remains incomplete. We develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathal forms and by conditioning the division of bequests on the beneficiaries' actions. The model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfer. We present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries.

Abstract: Households acquire wealth from two sources: they save out of income they have earned, and they receive transfers from other people. The first method of wealth accumulation goes under the name of life-cycle saving, in which people save during their working lives and dissave after retirement; the second involves either an inter vivos transfer (that is, a transfer between living people) or a bequest (a transfer that occurs at the death of the donor). While inter vivos transfers and bequests will arise in dynastic models where preferences include a taste for the well-being of one's descendents, few empirical life-cycle models reflect these concerns. Indeed, a sharp debate has arisen over the ability of the simple life-cycle model to explain observed wealth accumulation.

Abstract: Cross-section data often show that the wealth of the elderly increases with age even at advanced ages. These and other results suggest that the life-cycle hypothesis of consumption should be augmented to include a bequest motive for saving. In this paper, the author proposes a model of bequests, and a test for a bequ est motive. Using panel data, he finds that over a ten-year period the elderly in the data set dissaved, in contradiction to most cross- section results. The test offers no support for a bequest motive. Copyright 1987 by American Economic Association.