Spreadsheet estimation of bequests Miguel Snchez-Romero Max Planck - - PowerPoint PPT Presentation

Max Planck Institute for Demographic Research

Spreadsheet estimation of bequests

Miguel Sánchez-Romero††

† Max Planck Institute for Demographic Research (MPIDR) † Project financed by University of California, Berkeley

Outline

Outline Overview Issues Method Data How to use the Spreadsheet Extensions

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Overview

Overview

◮ Using data of 17 countries, Mason et al. (2011) found that

asset income of working-age adults is much greater than can be attributed to their observed saving. They rely on bequests and asset transfers.

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Issues

Issues

◮ Lack of available datasets to estimate assets transferred at

death

◮ The law of inheritance differs by country

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Method

Representative household reconstruction

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Method

Data

• UN demographic data 1950-2010 (fertility, mortality, and

population) Assumptions

• Individuals are paired at age 12 with people of the same

cohort

• Exit from marriage only occurs because of death
• Children have two representative parents
• Bequest is given either to children, or spouse, or both.

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Method

Method caveats

Sources of estimation biases

• Limited demographic information (don’t use this method

before 1990 with UN data!)

• High correlation between inter-vivos transfers and mortality
• High proportion of bequests given to individuals other than

children and spouses

• Significant age disparity between spouses
• Annuitized wealth
• Polygamy
• Heterogeneous households and inequality(?)

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Method

Bequest: Part I/II

...

pt(x)pt(x) 2pt(x)qt(x) pt(x) qt(x)qt(x) qt(x)

Figure: Expected bequest given, by partnership status and age Bequest given at age x depends on

◮ Age ◮ Partnership status {married,

widow/er}

◮ Number of eligible offspring ◮ Assets holding ◮ Inheritance law

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Method

Bequest: Part II/II

...

• ✁

ft(x + α) ft(x + α + 1) ft(x + α + 2) ft(x + β)

Figure: Expected bequest received from parent(s), by age Bequest received at age x depends on

◮ Age of the expected parent ◮ Status of the parent {married,

widow/er}

◮ Assets held by parent(s) ◮ Own marriage status ◮ Assets held by spouse ◮ Inheritance law

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Data

Data I/II

20 40 60 80 100 120 0.02 0.04 0.06 0.08 0.10

Age Hazard rate

First parent Both parents Second parent Spouse Total (sum) JSTAR raw data JSTAR smoothed Cases = 216 Exposures = 3946

Figure: Inheritance hazard rate, year 2009

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Data

Data II/II

20 40 60 80 100 120 0.1 0.2 0.3

Age Relative to labor income ages 30−50

Bequest motive I Bequest motive II Bequest motive III JSTAR raw data JSTAR smoothed Cases = 216 Exposures = 3946

Figure: Average bequest received, year 2009

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How to use the Spreadsheet

How to start using the Bequests template v2: I/II

Starting ⋆ Go to the NTA wiki and download the Bequest package in

http://www.ntaccounts.org/web/nta/show/Bequests%20and%20other%20capital%20transfers

⋆ Follow the steps contained in Bequest template v2, worksheet READ ME

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How to use the Spreadsheet

How to start using the Bequests template v2: I/II

Key variables ⋆ Choose the proportion of inheritance given to children (according to country’s inheritance law, or survey data) ⋆ Choose the appropriate interest rate (r) Asset holdingsx = Priv. asset incomex r

• Rule of thumb (closed-economy)

r ⋆ ≈ α 1−α Total labor income Total asset holdings −0.05 where 1−α is equal to Compensation of Employees to Value Added ratio.

• Assume a constant capital-to-labor income ratio

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How to use the Spreadsheet

Interface

Figure: Bequests template (Summary worksheet)

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How to use the Spreadsheet

Bequest profile

Figure: Proportion of inheritance given to children, α = 0%

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How to use the Spreadsheet

Bequest profile

Figure: Proportion of inheritance given to children, α = 50%

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How to use the Spreadsheet

Bequest profile

Figure: Proportion of inheritance given to children, α = 100%

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How to use the Spreadsheet

How to save the results

Macro “Save bequest profiles” ⋆ Clicking on the macro, all the information is saved in SavedProfiles v2.xlsx Legend

• BIP1 per capita bequest inflow from the death of the first parent
• BIP12 per capita bequest inflow from the simultaneous death of

both parents

• BIP2 per capita bequest inflow from the death of the second

parent

• BIPS per capita bequest inflow from the death of the spouse
• BI total per capita bequest inflow
• BO per capita bequest outflow
• BWx per capita bequest wealth

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Extensions

Extensions

How to introduce your own demographic information Step 1. Paste ASFR in worksheet fx Step 2. Paste ASMR, qx, Lx, px, and the population distribution in worksheet Data Step 3. Paste asset income, asset holdings, and labor income data in worksheet “at(x)” Please, maintain the format and the age range as in the original version Step 4. Go to worksheet Summary and change the Database information (Cells D7:E9) Step 5. Run Macros “Generate population” and “Generate bequest profile”

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Extensions

Thank you for your attention

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