Gifts that bind

We study whether receiving a monetary gift from parents increases the intensity of parent-child social contact. We use unique longitudinal data that follows adult children and their older parents for more than a decade (between 2004 and 2015) across various European countries. We first document that bequests, being more visible and subject to legal restrictions on their division, tend to be equalized among children, whereas gifts are less conspicuous and often unevenly distributed. Leveraging the exogenous variation induced by fiscal incentives resulting from inheritance tax legislation reforms, we use an instrumental variable (IV) and an endogenous treatment strategy to investigate the effect of gift-giving on parent-child social contact. Our findings suggest that financial transfers from parents to children lead to an increase in the intensity of parent-child interactions. We estimate that the receipt of a gift gives rise to a 12% increase in social contact.