Consumption responses to inheritances: The role of durable goods

• We examine the impact of inheritances on household consumption. • Findings suggest a positive impact of inheritances on household consumption of durable goods. • Estimates suggest nonlinearities according to the size of the inheritance. • Consumption responses are stronger among constrained households, in line with the life-cycle models of consumption. This paper studies the impact of inheritances, a key component in household wealth accumulation, on consumption. Specifically, we investigate how inheritances influence household consumption growth, distinguishing durable and nondurable goods. In doing so, we use data from the Panel Study of Income Dynamics spanning 2005–2019. The results reveal a positive effect of inheritances on household consumption of durable goods. Such an effect occurs immediately after receiving the inheritance and its average magnitude is about 27 %. Estimates also reveal that large inheritances significantly impact the consumption growth of durables, but also of non-durables, while small inheritances show no effects. Consumption responses are stronger among liquidity and borrowing constrained households, aligning with life-cycle models of consumption behavior. Insights inform planners by highlighting varied effects of inheritances on household consumption, particularly emphasizing the nuanced impact of inheritance size.