Ruhr Economic Papers
Ruhr Economic Papers #318
Like Father, Like Son: Inheriting and Bequeathing
by Lars Kunze
TU Dortmund, 02/2012, 23 S./p., 8 Euro, ISBN 978-3-86788-367-2 DOI: 10.4419/86788367download
Empirical evidence suggests that parents who have themselves inherited from their own parents are more likely to leave an estate to their children even after controlling for income, wealth and education. This implies an indirect reciprocal behavior between three generations by transmitting the attitude towards bequeathing from one generation to the next. We incorporate such an intergenerational chain into an overlapping generations model and show that the economy might be characterized by multiple steady states involving poverty traps. Individuals will not leave bequests unless per capita income levels exceed a threshold level. In such a situation, an unfunded social security security programme may help to overcome poverty by providing additional old age income out of which to bequeath.
JEL-Classification: D64, D91, H55
Keywords: Capital accumulation; indirect reciprocity; overlapping generations; unfunded social security