Investments, Bequests, and Public Policy : Intergenerational Transfers and the Escape from Poverty

This paper develops a conceptual framework for understanding the role of intergenerational transfers in the intergenerational transmission of poverty, provides empirical evidence on key aspects of intergenerational transfers, and discusses the role of public policy in helping the poor accumulate assets and transfer them to the next generation.While different types of wealth can be transferred intergenerationally by a multitude of actors, this paper is more narrowly focused on transfers of human and physical capital (assets), forms of wealth for which we have more empirical evidence. Section 2 consists of a conceptual framework that examines how families transfer wealth to children, and how the poor may face barriers to the transfer of such wealth. Section 3 illustrates various aspects of the conceptual framework using empirical evidence from developing countries, focusing on three themes: (1) the role of credit constraints in preventing optimal investments in human capital and asset transfers; (2) the role of gender differences in schooling and assets in perpetuating unequal lifetime incomes of men and women; and (3) the role of the marriage market and assortative matching in perpetuating asset inequality across families and intergenerationally. Section 4 examines the scope for public policy to relieve constraints to the accumulation and transfer of wealth to the next generation, bearing in mind the goals of reducing both poverty and inequality in the long run