A BEJEAP Advances article.

Abstract

We use mortality rates and age specific estimates of the response of transfers and wealth to lifetime resources to estimate how much of an extra dollar of parental lifetime resources will ultimately be passed on to adult children in the form of inter vivos transfers and bequests. We find that parents pass on between 2 and 3 cents of an extra dollar of expected lifetime resources in bequests and about 3 cents in transfers, which together amount to about one fifth of our rough estimate of the marginal propensity to spend on children under 18 and on college. The value of .4 relating earnings of the child to earnings of the parent rises to about .46 when the effect of parental earnings on bequests and transfers is added on, although the estimate is lower for nonwhites and varies with assumptions about the intergenerational earnings correlation and the number of children.

Submitted: August 3, 2005 · Accepted: December 4, 2006 · Published: February 17, 2007

Recommended Citation

Altonji, Joseph G. and Villanueva, Ernesto (2007) "The Marginal Propensity to Spend on Adult Children," The B.E. Journal of Economic Analysis & Policy: Vol. 7 : Iss. 1 (Advances), Article 14.
Available at: http://www.bepress.com/bejeap/vol7/iss1/art14

Related Files

data_programs_MPS.zip (6631 kB)
Data and STATA programs to replicate tables in the text. Also, some notes on sample construction (update)