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Inheritance, Steady‐State Consumption Inequality, and the Lifetime Earnings Process
Author(s) -
Wilhelm Mark O.
Publication year - 1997
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00076
Subject(s) - bequest , economics , consumption (sociology) , inequality , earnings , inheritance (genetic algorithm) , steady state (chemistry) , econometrics , marginal propensity to consume , overlapping generations model , consumption function , mathematics , microeconomics , production (economics) , macroeconomics , mathematical analysis , finance , biology , social science , biochemistry , chemistry , sociology , political science , market liquidity , law , gene
This paper presents a tractable model where the effect of inheritance on steady‐state consumption inequality can be derived under both linear and piecewise linear bequest functions. As has been found in previous research, the linear bequest function yields inheritances which reduce consumption inequality regardless of the model’s parameters. However, in the piecewise linear model, whether inheritances increase or reduce steady‐state consumption inequality depends on the magnitude of the marginal propensity to bequeath, the amount of earnings inequality and the degree of intergenerational earnings mobility.