Changing Property Rights in the Family: Evidence from an Inheritance Reform

Abstract

We analyze a Swedish reform that shifted the right to inherit an estate from children to parents. If parents are altruistic toward children and there are no transaction costs, a change of property rights in the family has no impact on the consumption of parents and children. We test and reject this prediction with new hand-collected data on wills and estates linked to panel data on labor supply and durable consumption. Our results show that the inheritance reform increased parents’ car ownership, increased the fraction of parents living in a house, and reduced parents’ labor supply. The magnitude of this response suggests that parents reacted to the reform as if all wealth previously inherited by children expanded their own budget constraint. The frequency and contents of parents’ wills reveal that many parents, especially the wealthy, used wills to protect their spouses from claims on the estate made by children.