Inheritance, Steady-State Consumption Inequality, and the Lifetime Earnings Process

Abstract

This paper presents a tractable model where the effect of inheritance on steady-state consumption inequality can be derived under both linear and piecewise linear bequest functions. As has been found in previous research, the linear bequest function yields inheritances which reduce consumption inequality regardless of the model's parameters. However, in the piecewise linear model, whether inheritances increase or reduce steady-state consumption inequality depends on the magnitude of the marginal propensity to bequeath, the amount of earnings inequality, and the degree of intergenerational earnings mobility. Copyright 1997 by Blackwell Publishers Ltd and The Victoria University of Manchester