THE EFFECT OF INHERITANCE RECEIPT ON RETIREMENT

This paper provides new evidence on how wealth shocks influence retirement behavior. Economic theory generally posits that leisure is a normal good, yet it is difficult to obtain reliable empirical estimates of the wealth effect because wealth is correlated with numerous unobservable characteristics...

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Bibliographic Details
Published in:The review of economics and statistics 2010-05, Vol.92 (2), p.425-434
Main Authors: Brown, Jeffrey R., Coile, Courtney C., Weisbenner, Scott J.
Format: Article
Language:English
Subjects:
Bequests
Conditional probabilities
Impact analysis
Inheritances
Labor supply
Liquidity
Parents
Retirement
Retirement income
Retirement planning
Statistical median
Studies
Wealth
Workforce
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Summary:This paper provides new evidence on how wealth shocks influence retirement behavior. Economic theory generally posits that leisure is a normal good, yet it is difficult to obtain reliable empirical estimates of the wealth effect because wealth is correlated with numerous unobservable characteristics that affect labor supply. We use inheritance receipt as a wealth shock and find that it is associated with a significant increase in the probability of retirement, especially when the inheritance is unexpected. This evidence has important implications for how public policies, such as pension or tax reform, may influence retirement behavior through the wealth effect.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest.2010.11182