Inter vivos transfers and intended bequests

Empirical work on intergenerational transfers has focused on distinguishing between altruistic and exchange motivated behavior. However, these two mod els are unable to explain the strong tendency far inter vivos transfers to be negatively related to the income of the recipient; while bequests bear n o relationship to income. This paper presents a new framework for analyzing transfers from parents to children that is more consistent with observed b ehavior than are the altruistic and exchange models alone. In particular th e model developed here predicts differing behavior with respect to inter vi vos transfers and bequests due to liquidity constraints and uncertainty abo ut the recipient's permanent income. The empirical work uses data from the Health and Retirement Study and the Asset and Health Dynamics Study. The pa tterns observed in these data are consistent with earlier findings that int er vivos transfers go disproportionately to less well-off children, while b equests are divided equally across children. Further, the results support t he predictions of the model in that differences in inter vivos transfers ar ise from differences in current income, while differences in bequests resul t when indicators of the children's permanent incomes differ. (C) 1999 Else vier Science S.A. All rights reserved.