The influence of inheritances on wealth inequality in rich countries

Abstract

This paper uses survey data from Germany, Spain, France, Italy, Great Britain and the United States to analyze how inheritances impact wealth inequality in a range of rich countries. Adopting an influence function regression approach, the paper calculates the counterfactual effects of small increases in the share of recipients of different-sized wealth transfers in each country. Results suggest that while a marginal increase in inheritance recipients generally contracts wealth inequality measures—confirming a common finding in the literature that inter-generational transfers tend to reduce relative wealth inequality—an increase in recipients of ‘large’ inheritances has the opposite effect. We determine what ‘large’ means in this context by point-estimating the thresholds above which transfers become disequalising. We find that transfers above the ninety-fifth percentile of the national transfer distribution are generally associated with an increasing effect on wealth inequality. Such thresholds are then put in perspective against the inheritance tax schedules in place in the six countries analyzed. No unique pattern emerges. While the thresholds are very close to tax exemption thresholds in Britain and Germany, they are somewhat higher in France and Spain and they are much lower in Italy and the United States.