Subjective Inheritance Expectations and Economic Outcomes

• Published date: 01 December 2023
• Author: Stefania Basiglio,Maria Cristina Rossi,Arthur Soest
• Date: 01 December 2023
• DOI: http://doi.org/10.1111/roiw.12621

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Review of Income and Wealth

Series 69, Number 4, December 2023

DOI: 10.1111/roiw.12621

SUBJECTIVE INHERITANCE EXPECTATIONS AND

ECONOMIC OUTCOMES

BY STEFANIA BASIGLIO∗

University of Bari

MARIA CRISTINA ROSSI

Pension Fund SupervisoryCommission and University of Turin

AND

ARTHUR VAN SOEST

Tilburg University and Netspar

In this paper we investigatewhether and to what extent inheritance expectations act as a driver of eco-

nomic choices. We use survey data that are representativeof the Dutch adult population with a specic

module on subjective probabilities on receivingan inheritance and its amount in the next 10 years. We

analyze whether the expected inheritance acts as a deterrent to saving.Results suggest that individuals

perceive the expected inheritances as a potential increase of personal wealth,which leads to a reduction

in savings.Expectations also appear to matter for the intentions to bequeath and for intended choices

on work versus leisure in the future.

JEL Codes: D14, D84, D91

Keywords:inheritance, savings, subjective expectations

1. INTRODUCTION

In this paper, we study the effect of an anticipated inheritance, using rich

measures of inheritance expectations derived from survey reports on subjective

probabilities. We analyze inheritance expectations and their impact on several

economic choices, in particular household savings, the intention to leavea bequest,

and expected labor supply at an older age. The role of a bequest in intertemporal

Note: We would like to thank the editor and two anonymous referees for all the precious sugges-

tions.We are grateful to Collegio Carlo Alberto for dataacquisition nancial support and to the staff of

CentERdata for their assistance with the survey. Wethank Jochem de Bresser, Adriaan Kalwij, Marike

Knoef, and Davide Vannoni for all useful comments. We also feel thankful for the valuableadvices of

the participants at the CeRP Workshop Household Finance and Retirement Savings,XXVth Meeting

on Public Economics & Workshop on Fiscal Policy and Microsimulation, PhD Researchers’ Forum of

Collegio Carlo Alberto, Society of Economics of the Household (SEHO2018),Workshopon Subjective

Expectations and Probabilities in Economics,59.ma Riunione Scientica Annuale della SIE. Open Access

Funding provided by Universitadegli Studi di Bari Aldo Moro within the CRUI-CARE Agreement.

*Correspondence to:Stefania Basiglio, DiEF Department, Università degli Studi di Bari Aldo

Moro, LargoAbbazia S. Scolastica, 70124 Bari, Italy (stefania.basiglio@uniba.it).

© 2022 The Authors.Review of Income and Wealth published by John Wiley & Sons Ltd on behalf of

International Association forResearch in Income and Wealth.

This is an open access article under the terms of the Creative Commons Attribution License,which

permits use, distribution and reproductionin any medium, provided the original work is properly cited.

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Review of Income and Wealth, Series 69, Number 4, December 2023

planning has been intensively debated in the literature. Decumulation rates of the

elderly are found to be muchlower than as predicted by a standard life cycle model.

Bequests and precautionary savings are the most accredited factors to explain

this evidence (Niimi and Horioka, 2019). Given that the chance of receiving an

inheritance, despite not necessarily for altruistic reasons (Horioka, 2002), is far

from unlikely in several countries; individuals can see inheritance as a form of

deferred wealth. If an inheritance is expected, it would be incorporated, like any

other form of expected resources, into the consumption and saving plans of a life

cycle planner.

Our empirical analysis uses the DNB Household Survey (DHS), a longitu-

dinal survey representative of the Dutch adult population that allows us to study

both psychological and economic aspects of nancial behavior. This panel survey

was launched in 1993 and comprises longitudinal information on work, pensions,

housing, mortgages, income, ownership of durable goods and assets, loans, health,

economic and psychological concepts, and personal characteristics. The data set is

particularly suited for our analysis as it includes many questions about sources of

income the respondents may have and contains detailed information on assets, lia-

bilities, and mortgages. As we are interested in questions concerning the probability

of receiving an inheritance in the future, we devised a special module that compre-

hends questions that enrich the DHS data set with new informationon inheritance

expectations.

Our results show that expected inheritances are negatively associated with cur-

rent savings. We think that a causal interpretation is plausible: individuals perceive

the expected inheritances as an increase in expected lifetime wealth, which raises

their optimal consumption and reduces their savings. Moreover, we nd thatexpect-

ing a larger inheritance is also negativelyassociated with intended labor supply at an

older age, in the sense of reducing the probability of working full-time at any point

after age 62. This is in line with the notion that leisure is a normal good—increasing

lifetime income raises the demand for leisure.Finally, we nd thatexpecting a larger

inheritance enhances the intention to bequeath. This can be rationalized with a life

cycle model with bequest motive, implying that the optimal bequest will increase

with lifetime income.1It may also have a less economic explanation: expecting an

inheritance indicates the presence of a family norm that makes leaving a bequest

more desirable. Eventually, all our results are in line with our expectations and

robust, even when dropping individuals who already beneted from a past inher-

itance and whose propensity to save might have already been shaped through the

previous transfer.

The remainder of the paper is organized as follows: Section 2outlines the

theoretical framework. Section 3describes the data. Section 4discusses the

empirical methodology and the main results for the analysis of savings. We also

extend the analysis by considering the effect of inheritance expectations on work-

ing intentions at older age and on bequest intentions. Section 5concludes the

paper.

1Jurges (2001) shows that a stated bequest motive is associated with a steeper age-wealth prole in

Germany.

© 2022 The Authors.Review of Income and Wealth published by John Wiley & Sons Ltd on behalf of

International Association forResearch in Income and Wealth.

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