Examining the Bequest Motive using Micro-data

Author: Haakon Peter Riekeles, ESOP Scholarship Recipient 2011.


What motivations lies behind saving behavior is an important question in economics. Understanding saving behavior is for example necessary in order to explain wealth inequality. By and larger there are three main motivations for saving described in the research literature. There is precautionary saving, which is the motivation for saving that arises out of a need to insure oneself against adverse events. There is life-cycle saving, which is the motivation for saving in order to smooth the consumption across ones life-time, typically saving more during ones prime working years to both pay off debts incurred previously and save for the retirement years to come. Finally there is dynastic saving; saving that is motivated by a desire to give bequests to ones offspring. This paper examines the extent to which evidence of a bequest motive can be found in data from the Panel Study of Income Dynamics. The approach used is to look at whether individuals with children save more, as would be predicted if the bequest motive were important.

In the first part of the empirical analysis, a fixed effect panel regression is used. Here support for the presence of a bequest motive is found. Both the adult children indicator and the presence of dependents in the household, the majority of which are the children of the economic decision makers in the household, had a statistically significant positive effect on the saving rate. Surprisingly the effect of adult children decreases with income, which is the opposite of what one would expect. The results from this analysis also confirmes the positive effect of income and wealth in general, and gave some indication of a life-cycle pattern in the saving rates. The second part of the analysis looks at long term saving rates using quantile regressions and a cluster robust OLS-regression. This analysis gives strikingly different results. Where the effects of adult children and dependents is significant, it has the opposite sign of the one found in the panel analysis. The results are therefore largely inconclusive with respect to whether a bequest motive can be identified in the data.

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Published Mar. 23, 2015 11:20 AM