IDEP Conferences, 11th journées Louis-André Gérard-Varet

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Inheritance as a disincentive to labor effort
Elin Halvorsen, Thor O. Thoresen, Erlend E. Bø

Last modified: 2012-05-11


Whether an inheritance has a negative impact on labor supply is important for understanding the behavioral effects of inheritance/estate taxation, the effect of unearned income on labor supply, and the dynamics of intergenerational transfers of resources. Using panel data covering all registered inheritances in Norway, we find that inheritance does have a negative, but small, impact on the recipient family's earnings in the years following the receipt of an inheritance. Our data gives the opportunity to follow recipients for a long time, and because the sample of inheritors is so large, to get good estimates for heterogeneous responses. We find that for young inheritors respond more along the intensive margin than the extensive margin, and that the effect is exhausted after five to six years. An older person who inherits is found to respond more along the extensive margin, and the effect is increasing over time. For all age groups we find that women reduce their earnings more than men after inheriting.

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