Intended and Accidental Bequests in a Life-cycle Economy

This paper studies the consequences of accidental and intended bequests in stochastic life-cycle models with uninsured idiosyncratic risk. Four main findings emerge. (i) Accidental bequests are nearly as large as total bequests in U.S. data. As a result, life-cycle models leave little room for intended bequests. (ii) Accidental or altruistic bequests can account for key features of bequest and wealth observations. (iii) The steady state and comparative statics properties of the model are little affected by assumptions about the type or strength of parental bequest motives, unless bequests are much larger than in the data. However, abstracting from bequests as is commonly done in life-cycle models modifies the outcomes of tax experiments in important ways. (iv) Neither accidental nor intended bequests have sizable effects on the wealth distribution. As a result, even confiscatory estate taxation may not be an effective instrument for promoting wealth equality.