While inheritances matter for some, particularly those with very wealthy parents, they do not play a significant role in overall wealth inequality.
The paper titled The (UN)Importance of Inheritance is by Sandra E. Black (Columbia University and NHH), Paul J. Devereux (Columbia University and NHH), Fanny Landaud CNRS and CY Cergy Paris University), and Kjell G. Salvanes NHH). Published in Journal of the European Economic Association.
`Our findings suggest that inheritance taxes may do little to mitigate the wealth inequality in society, ´ Kjell G. Salvanes says. He is a Professor at the Department of Economics and Deputy Director Norwegian Centre of Exellence FAIR.
Salvanes and his co-authors expand on this topic in their paper The (Un) importance of Inheritance, analyzing how gifts and inheritances shape individuals' lifetime resources (defined as income from work, transfers, capital income and inheritance over the life-cycle) and their overall impact on wealth distribution (see facts).
The study´s findings are somewhat surprising:
`Using 19 years of administrative data from Norway, we found that gifts and inheritances constitute only a small portion of total income inflows for most people´.
Contrary to conventional wisdom, which often portrays inheritance as a primary driver of wealth inequality, the study shows they account only for 2-5 percent of lifetime resources for the vast majority.
This challenges the widespread belief that inheritances perpetuate intergenerational wealth disparities by providing substantial advantages to heirs of wealthy families.
`However, inheritances and gifts are more significant for a small segment of the population – those whose parents are in the top 0.1 percent of the wealth distribution´.
For this group, approximately 5 500 individuals in Norway, gifts and inheritances account for about 40 percent of their lifetime inflows and often occur earlier in life compared to others.
`Children from the wealthiest families tend to receive inter-vivo gifts during their 20s or 30s, unlike most people who inherent later in life, usually peaking in their 50s, Salvanes explains and adds:
`These early transfers can influence key opportunities like education or housing, further entrenching inequality among this elite group´.
Despite the prominence of inheritances in public debate, the study finds that labor income and government transfers are the dominant sources of lifetime resources across wealth and income distributions.
Even among individuals in the top 1 percent of wealth or income, gifts and inheritances account for less than 10 percent of their total inflows.
Inheritance taxes are a common feature of fiscal systems across Europe, with most countries employing them in some form to address wealth transfer and redistribution.
`What does this mean for policymakers? ´
`Policies focused solely on inheritance taxes may have a limited impact on reducing inequality. Instead, addressing inequality in labor income, says Salvanes.
`Instead, addressing disparities in labor income – perhaps through early childhood education investments and ensuring equitable opportunities – may be a more impactful strategy for tackling wealth disparities´.