Inheritance Shocks and Expenditure Patterns: A Dynamic Collective Approach

Understanding how household decisions react to economic shocks is important for effective policy design. Using detailed individual consumption data, we investigate how household consumption responds to unexpected inheritance realizations within an inter-temporal collective framework. Inheritances constitute personal assets that are not equally divided upon divorce among spouses according to matrimonial property laws, and they play the role of stochastic distribution factors affecting intra-household bargaining dynamics. Estimating a dynamic collective model, the analysis provides evidence consistent with dynamic bargaining effects. In particular, heirs immediately increase their consumption growth, while their partners experience a decline in their consumption. These findings are not driven by liquidity- or credit-constrained households, which could otherwise lead households to overreact to inheritance receipts.