Bequests and labor supply in Germany

Abstract

Little is known on the effects of inheritances on the working behavior of heirs. Using panel data for Germany, we find behavioral responses that amount up to a 16% reduction in working hours for inheritances of one Mio Euro. For the majority of beneficiaries labor supply effects are, however, modest (owing to small amounts of inherited wealth). These results remain robust if we restrict the sample solely on those persons receiving an inheritance. Although more modest, higher inheritances promote a stronger adjustment in labor supply compared to small inheritances. In contrast to previous studies the partner does not adjust working hours and the full response takes place in the phase of the inheritance. Although negative income effects are present for all types of inheritances, behavioral responses are stronger if the heir receives liquid assets. The results depend, however, critically on the choice of the control group.