by Parinay Gupta
Abstract
Using longitudinal data from Panel Study of Income Dynamics (PSID) from 2007-2021, this
paper investigates the role of economic transfers (inheritances and gifts) in asset
accumulation processes of US households, in both short-term and long-term. Analysis is
done through dimensions of race, wealth quartile, and age. Examining quartiles reveals
significant wealth disparities, mirrored in income and education levels. Racially, White
households consistently hold higher wealth, income, and educational levels compared to
Black households, indicating systematic racial disparities. Multivariate analysis uncovers
relationships between socio-economic factors and wealth. Past wealth positively influences
future accumulation, except for the lowest quartile. Labor income negatively impacts wealth,
particularly in lowest quartile, potentially indicating poverty traps and dissaving, while asset
income positively affects quartiles except the lowest, in both short-term and long-term. Total
expenditure initially reduces wealth but reverses in quartiles except the lowest in both time
frames. Race is significantly associated with wealth, with young Black households
consistently disadvantaged, though this reverses for the wealthiest quartile and in longerterm.
Age correlates positively with wealth. Transfers’ (inheritances and gifts) impact varies
across quartiles, showing diminishing returns and switching signs as wealth quartile
increases, indicating differential returns for upper quartiles. Noteworthy is the positive
association between transfers received 8-10 years ago and current wealth, irrespective of age
and wealth quartile, highlighting their significant long-term role in wealth accumulation.
Prof. William Darity, Faculty Advisor
Prof. Michelle Connolly, Faculty Advisor
JEL Classification Numbers: D14, D31, J15
