Working Paper: NBER ID: w7183
Authors: Jagadeesh Gokhale; Laurence J. Kotlikoff; James Sefton; Martin Weale
Abstract: This paper develops, calibrates, and simulates a dynamic 88-period OLG model to study the intergenerational transmission of U.S. wealth inequality via bequests. The model features marriage, realistic fertility patterns, random death, assortative mating based on skills, heterogeneous skill endowments, heterogeneous rates of return, skill inheritability, progressive income taxation, and resource annuitization via social security. All bequests arise from imperfect annuitization. Nonetheless, the model generates a realistic ration of aggregate wealth to aggregate labor income, a realistic bequest flow relative to the stock of wealth, and a realistic wealth distribution at retirement. Skill differences, assortative mating, social security, and the time preference are the primary determinants of wealth inequality. Bequests do propagate wealth inequality, but only in the presence of social security, which disproportionately disinherits the lifetime poor. Intergenerational wealth immobility, also considered here, is primarily determined by the inheritance of skills from one's parents and the magnification of the impact of this inheritance by marital sorting.
Keywords: wealth inequality; bequests; inheritance; social security
JEL Codes: D31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bequests (D64) | wealth inequality (D31) |
| social security (H55) | wealth inequality (D31) |
| social security (H55) | disinheritance of the poor (D14) |
| inheritance of skills (Y80) | wealth inequality (D31) |
| assortative mating (C78) | wealth inequality (D31) |
| time preference (D15) | wealth inequality (D31) |
| longevity (C41) | distribution of inheritances (D14) |
| distribution of labor earnings (J31) | non-inherited wealth (D31) |
| parents' wealth (G51) | children's inheritance (D14) |
| number of siblings (J12) | children's inheritance (D14) |