Intergenerational Transfers and the Accumulation of Wealth

Households acquire wealth from two sources: they save out of income they have earned, and they receive transfers from other people. The first method of wealth accumulation goes under the name of life-cycle saving, in which people save during their working lives and dissave after retirement; the second involves either an inter vivos transfer (that is, a transfer between living people) or a bequest (a transfer that occurs at the death of the donor). While inter vivos transfers and bequests will arise in dynastic models where preferences include a taste for the well-being of one's descendents, few empirical life-cycle models reflect these concerns. Indeed, a sharp debate has arisen over the ability of the simple life-cycle model to explain observed wealth accumulation