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.

Professor William Darity, Faculty Advisor
Professor Michelle Connolly, Faculty Advisor

JEL Codes: D14, D31, J15

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