Simulating the Transmission of Wealth Inequality Via Bequests

Posted: 23 Sep 2001

See all articles by Jagadeesh Gokhale

Jagadeesh Gokhale

Cato Institute

Laurence J. Kotlikoff

Boston University - Department of Economics; National Bureau of Economic Research (NBER); Gaidar Institute for Economic Policy

James A. Sefton

Imperial College London

Martin R. Weale

National Institute of Economic and Social Research (NIESR)

Abstract

This paper develops, calibrates, and simulates a dynamic 88-period OLG model to study the intergenerational transmission of U.S. wealth inequality via bequests. The model features marriage, realistic fertility patterns, random death, assortative mating based on skills, heterogeneous skill endowments, heterogeneous rates of return, skill inheritability, progressive income taxation, and resource annuitization via social security. All bequests arise from imperfect annuitization. Nonetheless, the model generates a realistic ratio of aggregate wealth to aggregate labor income, a realistic bequest flow relative to the stock of wealth, and a realistic wealth distribution at retirement. Skill differences, assortative mating, social security, and the time preference are the primary determinants of wealth inequality. Bequests do propagate wealth inequality, but only in the presence of social security, which disproportionately disinherits the lifetime poor. Intergenerational wealth immobility, also considered here, is primarily determined by the inheritance of skills from one's parents and the magnification of the impact of this inheritance by marital sorting.

Suggested Citation

Gokhale, Jagadeesh and Kotlikoff, Laurence J. and Sefton, James A. and Weale, Martin R., Simulating the Transmission of Wealth Inequality Via Bequests. Journal of Public Economics, Vol. 79, No. 1, January 1, 2001, Available at SSRN: https://ssrn.com/abstract=252452

Jagadeesh Gokhale (Contact Author)

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
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Laurence J. Kotlikoff

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
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617-353-4449 (Fax)

National Bureau of Economic Research (NBER)

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Gaidar Institute for Economic Policy

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Russia

James A. Sefton

Imperial College London ( email )

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Exhibition Road
London, Greater London SW7 2AZ
United Kingdom
+44 (0)20 7594 9128 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/j.sefton

Martin R. Weale

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom

HOME PAGE: http://www.niesr.ac.uk/

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