Michele Bavaro - Simulating long run wealth distribution and transmission: The role of inter-generational transfers

  • Presenting author: Michele Bavaro (Oxford University)

  • Authors: Michele Bavaro, Stefano Boscolo, Simone Tedeschi

  • Session: C03A - Dynamic / Long term [4] - Wednesday 14:00-15:30 - Ceremonial Hall

Based on the Italian Treasury Dynamic Microsimulation Model (T-DYMM), whose base year sample refers to the 2015 year and is derived from survey data with further enrichment from administrative information, this paper simulates individual and household economic trajectories up to 2070 in order to focus on the long-term transmission mechanisms of wealth inequality via inter-generational transfers (inter-vivos donations and bequests). The model features probabilistic demographic events (fertility, births, marriages, assortative mating based on education, mortality), labour market choices and related outcomes (heterogeneous skill endowments, careers and earnings), retirement incomes, income taxes paid and in-cash benefits received, as well as consumption, savings and wealth transmission mechanisms at the household level. Among the main findings, given no changes in behaviours and policies over time, we show that net wealth inequality is expected to remain fairly stable until 2040 and then progressively increases in subsequent years. According to our model, the primary driver of such a boost are inter-generational transfers (especially bequests), which are supposed to increase around that time due to the final transmission between Baby Boomers towards Gen-Xers and the beginning of that between Gen-Xers and Gen-Yers.