Lessons from the World Financial Crisis for the Central Bank of Norway: The Approach to Monetary Policy and Financial Stability

“…As for the data from the Income statistics for persons and families, we primarily use information for the years from 1997 to 2010, 11 which means that a person inheriting in 2000 is observed for three "before transfer" years (data for 1997, 1998 and 1999) and in six years of the "after transfer" period (2001−2006 (Berg and Eitrheim, 2013). In Norway, during the period we are studying here, it is unlikely that any reduction in wage income should stem from a reduction in wage rates.…”

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confidence: 99%

Heterogeneity of the Carnegie Effect

2018

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Abstract:The Carnegie effect (Holtz-Eakin, Joualfaian and Rosen, 1993) refers to the idea that inherited wealth harms recipient's work efforts, and possesses a key role in the discussion of taxation of intergenerational transfers. However, Carnegie effect estimates are few, reflecting that such effects are hard to trace in data. Most previous studies have relied on data from limited size sample surveys. Here we use information from a rich administrative data set covering the entire Norwegian population, which makes it possible to undertake a detailed examination of the Carnegie effect, including how it varies across groups of recipients. The estimation results show significant reductions in labor supply for recipients of large inheritances, in the range from 7 to 10 percent in the first six years after the transfer. Moreover, we find that the Carnegie effects differ according to the size of the transfer, the age of the recipients, the recipient's eligibility to other transfer programs, and the existence of new heirs in the family chain. SammendragDen store industrimagnaten Andrew Carnegie (1835-1919) mente at barn ikke hadde godt av å arve formue fordi det ville undergrave deres vilje til å arbeide. I denne studien undersøker vi om den såkalte Carnegie-effekten, altså at arv fører til redusert arbeidsinnsats, er av stor betydning i Norge.Videre undersøker vi om det er en midlertidig eller en varig effekt, og hvordan responsen varierer mellom husholdningstyper. Vi finner en signifikant reduksjon i arbeidsinntekten til personer som arver mer enn en gjennomsnittlig stor arv, på om lag 7 til 10 prosent. Effekten er størst i de første to til tre årene etter arven, men også så lenge som seks år etter er det en signifikant negativ effekt. Unge arvemottakere og mottakere naer pensjonsalder reduserer arbeidstilbudet mest, og enslige mer enn gifte med små barn. Vi har en hypotese om at arvinger som selv har livsarvinger har en lavere tilbøyelighet til å bruke arven på seg selv enn arvinger uten egne livsarvinger, altså at man føler et ansvar for å videreføre ressursene til neste generasjon. Derfor ser vi spesielt på om arvemottakere uten egne livsarvinger er mer tilbøyelige til å bruke arven på seg selv, i form av mer fritid og mindre arbeid. Vi finner at dette stemmer. Å skattlegge arven reduserer Carnegie-effekten, og øker dermed arbeidstilbudet. Resultatene har også implikasjoner for hvordan arveavgiftssystemet bør utformes.Både progressive satser og lavere sats for livsarvinger støttes av våre resultater.

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“…There are no reasons to expect macroeconomic condition to have had any substantial effects on results, as the period under consideration is characterized by a large degree of stability. Even though the financial crisis of 2008−2009 affected the Norwegian economy too, effects were much smaller than seen in other countries (Berg and Eitrheim, 2013).…”

Section: Data Descriptionsmentioning

confidence: 85%

Heterogeneity of the Carnegie Effect

2015

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The Carnegie effect (Holtz-Eakin, Joualfaian and Rosen, 1993) refers to the idea that inherited wealth harms recipient's work efforts, and possesses a key role in the discussion of taxation of intergenerational transfers. However, Carnegie effect estimates are few, reflecting that such effects are hard to trace in data. Most previous studies have relied on data from limited size sample surveys. Here we use information from a rich administrative data set covering the entire Norwegian population, which makes it possible to undertake a detailed examination of the Carnegie effect, including how it varies across groups of recipients. The estimation results show significant reductions in labor supply for recipients of large inheritances, in the range from 7 to 10 percent in the first six years after the transfer. Moreover, we find that the Carnegie effects differ according to the size of the transfer, the age of the recipients, the recipient's eligibility to other transfer programs, and the existence of new heirs in the family chain.

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Lessons from the World Financial Crisis for the Central Bank of Norway: The Approach to Monetary Policy and Financial Stability

Cited by 3 publications

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Heterogeneity of the Carnegie Effect

Heterogeneity of the Carnegie Effect

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