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Supplementary graphs & material (not shown during lecture)

Supplementary graphs & material (not shown during lecture). Computing inheritance flow. B t /Y t = µ t m t W t /Y t ▪ W t /Y t = aggregate wealth/income ratio ▪ m t = aggregate mortality rate

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Supplementary graphs & material (not shown during lecture)

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  1. Supplementary graphs & material (not shown during lecture)

  2. Computing inheritance flow Bt/Yt = µt mt Wt/Yt ▪ Wt/Yt = aggregate wealth/income ratio ▪ mt = aggregate mortality rate ▪ µt = ratio between average wealth of decedents and average wealth of the living (= age-wealth profile) → The U-shaped pattern of inheritance is the product of three U-shaped effects

  3. Application to the share of inheritance in total wealth • Modigliani AER 1986, JEP 1988: inheritance = 20% of total U.S. wealth • Kotlikoff-Summers JPE 1981, JEP 1988: inheritance = 80% of total U.S. wealth • Three problems: - Bad data • We do not live in a stationary world: life-cycle wealth was much more important in the 1950s-1970s than it is today • We do not live in a representative-agent world → new definition of inheritance share

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