Behavioural responses of older Europeans to inheritance receipt

Recent increases in longevity imply that individuals are increasingly older at the moment of receiving an inheritance. Inheritances are transitory shocks to lifetime income that, nevertheless, can be large and thus may have an impact on the economic situation of individuals around the retirement age. The present paper studies how individuals respond in terms of consumption, labour supply and retirement decisions. I start out by studying the responses of interest within framework of the life cycle model. I then test the implications of the model using data from the Survey on Health, Ageing and Retirement in Europe (SHARE), which allows me to distinguish between expected and unexpected inheritances by using self-reported inheritance expectations. The outcome of the regression analysis allows ruling out large effects on working hours and on retirement. Regarding consumption, the poor quality of the data implies that the effects are estimated rather imprecisely and it is thus more difficult to reach a conclusion. These results are compatible with several explanations. First, it can be that inheritances do not have an effect because they are not large enough vis-à-vis previous wealth and expected future income. Second, it can be that inheritance receipt increases the willingness to leave a bequest and thus individuals simply save the amount received. Third, it can be that labour market and social security regulations are not exible enough to allow individuals to reduce working hours or retire earlier after receiving an inheritance. Finally, it can be that there are large responses in consumption that cannot be captured with the data I use.