Long-Run Determinants of Intergenerational Transfers

Abstract

Understanding whether the elderly are saving adequately is fundamental to understanding whether elderly households are able to maintain reasonable living standards. One factor that affects wealth accumulation is the extent to which parents need to support children and the extent to which children need to support parents. The presence of Social Security may affect intergenerational transfers, but the extent to which it ‘crowds out’ transfers from parents to children is controversial. The ideal dataset to analyze these issues would have detailed information on two or three generations and measures of long range outcomes of parents and their children. The Wisconsin Longitudinal Study (WLS) offers a possibility to analyze the impact of transfer patterns on wealth accumulation. We look at transfers over a long time period, informed by different theories of transfer behavior, as well as how cognitive skills and other attributes earlier in the life-cycle influence transfer and saving behavior later on in life. Long-term transfers are less equally distributed across siblings than short-term transfers, and the sum of transfers and inheritances is less equally distributed than transfers and inheritances alone. Transfers from parents-in-law are positive but statistically insignificantly correlated with the amount of transfers received from one’s own parents. Inter-vivos transfers from parents are not affected by transfers from parents-in-law. We find a strong positive association between the incidence of giving to own children and having received a gift from own parents, conditional on income and net worth.