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Time to smell the roses? Risk aversion, the timing of inheritance receipt, and retirement

Author

Listed:
  • B. GARBINTI

    (Insee, Crest et Banque de France)

  • S. GEORGES-KOT

    (Insee)

Abstract

Understanding when workers choose to retire is key for the design of public pensions and labor market policies. Private wealth may play a substantial role in retirement decisions, but little is still known on the link between the two. In this paper, we explore a new way to leverage the receipt of an inheritance as a plausible exogenous wealth shock, by relying on the precise timing of receipt. Using retrospective calendars from the French wealth survey, we find that, at any age between 55 and 65, chances of current labor market exit are 40% higher among individuals who inherit at that age than among those who inherit in the next few years. To go further in understanding the effect of inheritance receipt on labor force participation, we develop a model of retirement choice with risk aversion and an endogenous replacement rate and we test its predictions. We find that inheritance receipt triggers current labor force exit because risk averse individuals plan their retirement date according to the certainty equivalent of their bequest, not its expected value.

Suggested Citation

  • B. Garbinti & S. Georges-Kot, 2016. "Time to smell the roses? Risk aversion, the timing of inheritance receipt, and retirement," Documents de Travail de l'Insee - INSEE Working Papers g2016-01, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2016-01
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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zrc19/f1.pdf
    File Function: Document de travail de la DESE numéro G2016-01
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    Citations

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    Cited by:

    1. Bertrand Garbinti & Jonathan Goupille-Lebret, 2018. "The Impact of Inheritance and Transfer Taxation on Economic Behaviours and Inequality: A Literature Review for France," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 16(02), pages 13-18, August.
    2. Bertrand Garbinti & Frédérique Savignac, 2020. "Accounting for Intergenerational Wealth Mobility in France over the 20th Century: Method and Estimations," Working papers 776, Banque de France.
    3. repec:ces:ifodic:v:16:y:2018:i:2:p:50000000002755 is not listed on IDEAS
    4. Goupille-Lebret, Jonathan & Infante, Jose, 2018. "Behavioral responses to inheritance tax: Evidence from notches in France," Journal of Public Economics, Elsevier, vol. 168(C), pages 21-34.
    5. Crusius, Tobias L. & von Werder, Marten, 2017. "The affluency to quit: How inheritances affect retirement plannings," Discussion Papers 2017/24, Free University Berlin, School of Business & Economics.
    6. von Werder, Marten, 2018. "Intergenerational transfers: How do they shape the German wealth distribution?," Discussion Papers 2018/15, Free University Berlin, School of Business & Economics.
    7. Margit Schratzenstaller, 2023. "Behavioral Responses to Inheritance Taxation. A Review of the Empirical Literature," WIFO Working Papers 668, WIFO.

    More about this item

    Keywords

    Retirement; inheritance; labor supply; risk aversion;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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