Intergenerational Economic Transfers and Wealth Inequality in the United States
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
Social Capital and Financial Development after Economic Shocks: Evidence from Italy after the Financial Crisis of 2007-2009
By Sujay Rao & Ethan Lampert
Like traditional forms of capital, social capital – an intangible measure of an individual’s social networks, trust in institutions, and participation in civic life – has implications for personal and financial behavior. Individuals from educated, well established backgrounds with fruitful family ties may be more amenable to opening new lines of credit or investing in stock markets due to their trust in and connectedness with society. But what happens after a major economic shock, such as the financial crisis of 2008? Using Italy as a case study and panel data from the Survey of Household Income and Wealth, we find that social capital has significant effects on an individual’s credit card usage, informal borrowing, and choice to invest in securities.
Advisors: Professor Grace Kim, Professor Michelle Connolly, Professor Giovanni Zanalda | JEL Codes: G01, G2, O1, D1, D14
Are the Chinese Altruistic? Explaining Motives behind Chinese Intergenerational Transfers using the Strategic Bequest Motive
By Lucy Yin
Two main competing theories regarding intergenerational transfers from adult children to elderly parents exist: the altruism model and the exchange model. The strategic bequest motive supports the exchange model in claiming parents with bequeathable wealth will incentivize children to devote more resources to parents in order to receive a larger bequest. I use data from the Chinese Longitudinal Healthy Longevity Survey to assess whether children increase monetary or time transfers to elderly parents with bequeathable property ownership. My findings suggest an altruistic model at play, which contradicts most findings in East Asian countries but may be a trend found in other developing countries.
Advisor: Frank Sloan, Michelle Connolly | JEL Codes: D14, D64 | Tagged: Bequests, Altruism, Intergenerational Transfers
The Rise of Mobile Money in Kenya: The Changing Landscape of M-PESA’s Impact on Financial Inclusion
By Hong Zhu
M-PESA, the hugely popular mobile money system in Kenya, has been celebrated for its potential to “bank the unbanked” and increase access to financial services. This paper provides evidence to support this idea and explores mechanisms through which this might be the case. It specifically looks at the savings products held by individuals and how this changes in relation to M-PESA use. It then constructs an index for measuring the extent to which individuals are integrated into the formal financial sector. This paper argues that M-PESA’s effect on financial inclusion is a growing phenomenon, which suggests that keeping pace with the rapid evolutions of this mobile money system should be a high priority for researchers. As this paper elucidates, M-PESA has become notably more integrated with the formal financial sector in 2013 as compared to 2009, which holds implications for user behavior.
Advisor: Michelle Connolly, Xiao Yu Wang | JEL Codes: D14, E42, G21, G23, O1, O17, O16, O33 | Tagged: Financial Inclusion, Mobile Money, Savings,Technology
