AME Labour Economics Seminar, at the Swedish Institute for Social Research (SOFI).

Xiaoguang Ling (University of Oslo)

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Abstract

It has long been assumed that inheritances, particularly large inheritances, have a negative effect on the labor supply of inheritors. Using Norwegian register data, this paper examines the inheritance-induced wage and business income, which are proxies of labor supply, drop of the inheritors. In contrast to previous research, my estimates allow the dynamic effect of inheritances on labor supply to vary among inheritor cohorts. The estimation approach and the 25-year-long panel data allow me to observe the dynamics of the effect of inheritances across a 30-year horizon, which is four times longer than the literature. Since all of the observations in my sample are inheritors, I avoid the selection problem in studies employing non-inheritors as control. I find that large parental inheritances (more than one million Norwegian kroner) reduce wage income by at most four percent and increase the probability of being self-employed by more than one percent. Large inheritances from grandparents have a greater negative effect on wage income and education level of the heirs, but increase their probability of self-employment by up to 14%. The effect of inheritances on earning lasts longer than 10 years and is more pronounced for men and young heirs. In addition, I find that the effect of lottery winning, which is widely employed as a quasi-experimental wealth shock, may lack external validity when extrapolated to the effect of inheritances: despite the fact that lottery winnings are completely unpredictable, lottery winners behave differently in the years preceding their winnings, and there is a clear pretrend.

Read more about Xiaoguang Ling and his research