As described previously, not all households have received inheritances or gifts, and for those households who have, the value of these wealth transfers differs. In this chapter the relationship between various household characteristics and intergenerational wealth transfers are further examined using an econometric analysis approach.
In the first part of the analysis the relationship between household characteristics and the relative probability of having received an inheritance or gift is examined. For recipient households, we then assess whether the value of these intergenerational transfers varies across household characteristics. Finally, the relationship between having received a transfer, the value of transfers, and the current net wealth position of households is investigated. This econometric analysis estimates correlations in the data and causal relationships cannot be determined, thus caution is advised when interpreting the results.
The regression models presented have been specified following the approaches taken in similar pieces of research. These regressions do not include all factors that may determine the outcome variables thus, in the absence of relevant explanatory variables, greater importance is likely to have been placed on the independent variables included in the models. For example, Crawford and Hood (2016) include explanatory variables relating to the parents of each households, which are significant in determining the participation in intergenerational transfer. These variables are not available from the HFCS and thus are not included. Also, Nolan et al. (2021) includes household wealth as an explanatory variable, which was omitted from the first two parts of this analysis. If household wealth position was included as an explanatory variable in our regressions, it would reduce the relative importance of the other independent variables that are included.
The analysis shows that older households, those with higher educational attainment and households higher up the income distribution were more likely to have received an inheritance or gift. The value of inheritances and gifts received is mainly associated with the age of the household reference person, as age increased so too did the value of the inheritances and gifts received. Having received an inheritance or gift is related to households being relatively further up the net wealth distribution. Similarly, the higher the value of inheritances and gifts received the higher up the net wealth distribution a household is likely to be.
Following research carried out by Lawless and Lynch (2017), Crawford and Hood (2016) and Nolan et al. (2021) the relative probabilities of having received 1) an inheritance or gift; 2) an inheritance; or 3) a gift at some point is estimated using independent variables such as age, principal economic status, and education of the household reference person along with other household characteristics such as region, number of persons in the household and household’s income position. The estimates are relative probabilities based upon a comparison to a reference household defined as: a single person household in the lowest income quintile, whose reference person was male, aged under 35, was in employment and whose highest education level was primary education.
The results of these three logistic regressions are presented in Table 5.1 which show the average marginal effects on the probability of receipt. The probability of having received an inheritance has a positive relationship with the age of the household reference person. Households in older age groups were more likely to have received an inheritance. Older households were however less likely to have received a gift, with all reference person age groups from 45 to 55 and above less likely to have received a gift, relative to households with a reference person under 35. Households whose reference person was aged 35 to 44 were slightly more likely to have received a gift.
In terms of the educational attainment of the household reference person, it is evident that households with second level or third level education were more likely to have received an inheritance or gift, relative to the reference group of households with primary education only.
Households in all principal economic status groups presented were less likely to have received an inheritance or gift relative to the reference households whose reference person was in employment. Those whose reference person was retired were slightly more likely to have received an inheritance while households whose reference person was classified as other were more likely to have received a gift.
Households in higher income quintiles are more likely to have received an inheritance or gift. See Table 5.1.
Focusing on households that have received an inheritance or gift, and again following the methods of Lawless and Lynch (2017), Crawford and Hood (2016) and Nolan et al. (2021), the relationship between the value of those wealth transfers and household characteristics are now assessed. Using an Ordinary Least Squares model, the log value for inheritances and gifts is regressed on the household characteristics described previously in this chapter.
The age of the household reference person has the strongest relationship with the value of inheritances and gifts. As the household age increased so too did the value of the inheritances and gifts received. This significant positive relationship is evident between the household age and inheritance values but is not as clear between household age and gift values.
The household reference person having a highest education level of either secondary or tertiary is associated with positive effects on the value of inheritances and gifts, but they are not statistically significant.
Increased inheritance and gift values are associated with households in higher income quintile groups, but only income quintiles 4 and 5 are statistically significant. See Table 5.2.
Finally, the effect inheritances and gifts received had on the net wealth position of households is examined. Following the methods of Lawless and Lynch (2017) and Fessler and Schürz (2015), the effect of having received an inheritance or gift on the net wealth position of households is investigated. This analysis aims to assess whether having received a transfer affects households’ position in the household net wealth distribution, while controlling for households’ characteristics and households’ income position.
Household’s position in the net wealth distribution is regressed on the independent variables including a dummy variable for recipients/non-recipients of inheritances or gifts, the household’s position in the income distribution and other household characteristics. The results presented are descriptive in nature and do not imply causal relationships, thus caution should be taken when interpreting the results.
The results presented in Table 5.3 estimate that having received an inheritance or gift is associated with an increase in the net wealth position of 12 percentiles relative to households with the same characteristics and income level but had not received an inheritance or gift. This estimate is lower than the 15.4 percentile value estimated by Lawless and Lynch (2017) based on 2013 HFCS data for Ireland. However, our estimate from HFCS 2020 is well within the range of estimates produced by the country-specific regressions by Fessler and Schürz (2015) which used HFCS 2010 data.
There is a positive and significant relationship between households’ position on the income distribution and their net wealth position. It is estimated that a one percentile increase in household’s income position is associated with being 0.43 percentiles higher up the net wealth distribution. This estimate is similar to the European pooled estimate for this relationship which is 0.4 percentiles for HFCS 2010 data and is larger than the 0.29 percentile estimate for Ireland by Lawless and Lynch using HFCS 2013 data.
In the second regression presented in Table 5.3, the log value of inheritances and gifts are included as an independent variable to assess its relationship with a household’s net wealth position. The value of inheritances and gifts is positively associated with a household’s net wealth position. It is estimated that a 1% increase in the value of inheritances and gifts received is associated with an increase in the net wealth position of 5 percentiles, controlling for household income position and other household characteristics. It must be noted that inheritance and gift values have higher rates of non-response in the HFCS and thus there are a greater number of imputed values for this variable, thus, caution is advised when interpreting the relationships presented.
Crawford, R., & Hood, A. (2016). Lifetime receipt of inheritances and the distribution of wealth in England. Fiscal Studies, 37(1), 55-75.
Fessler, P., & Schürz, M. (2015). Private wealth across European countries: The role of income, inheritance and the welfare state. ECB Working Paper 1847. Frankfurt am Main: European Central Bank.
Lawless, M., Lynch, D., (2017). Gifts and inheritances in Ireland, ESRI Working Paper, No. 579, The Economic and Social Research Institute (ESRI), Dublin.
Morelli, S., Nolan, B., Palomino, J. C., & Van Kerm, P. (2021). Inheritance, gifts and the accumulation of wealth for low-income households. Journal of European Social Policy, 31(5), 533–548.
Nolan, B., Palomino, J. C., & Van Kerm, P., Morelli, S., (2021). Intergenerational wealth transfers in Great Britain from the Wealth and Assets Survey in comparative perspective, Journal of Applied Public Economics: Fiscal Studies, Volume 43, Issue2.
