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The Inherited Inequality: How Demographic Aging and Pension Reforms can Change the Intergenerational Transmission of Wealth

Author

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  • Klimaviciute Justina

    (University of Liege,Liège, Belgium)

  • Pestieau Pierre

    (University of Liege,Liège, Belgium)

  • Onder Harun

    (Macroeconomics and Fiscal Management Global Practice, The World Bank,Washington, D.C., United States of America)

Abstract

The role of inherited wealth in modern economies has increasingly come under scrutiny. This study presents one of the first attempts to shed light on how demographic aging could shape this role. It shows that, in the absence of retirement annuities, or for a given level of annuitization, both increasing longevity and decreasing fertility should reduce the inherited share of total wealth in a given economy. Thus, aging is not likely to explain a recent surge in this share in some advanced economies. Shrinking retirement annuities, however, could offset and potentially reverse these effects. The paper also shows that individual bequests will be more unequally distributed if aging is driven by a drop in fertility. In comparison, the effect of increasing longevity on their distribution is non-monotonic.

Suggested Citation

  • Klimaviciute Justina & Pestieau Pierre & Onder Harun, 2019. "The Inherited Inequality: How Demographic Aging and Pension Reforms can Change the Intergenerational Transmission of Wealth," German Economic Review, De Gruyter, vol. 20(4), pages 872-891, December.
    • Handle: RePEc:bpj:germec:v:20:y:2019:i:4:p:e872-e891
    DOI: 10.1111/geer.12193
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    Keywords

    Inherited wealth; inheritance; aging; inequality; social security;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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