By Brian Nolan, Juan Palomino, Philippe Van Kerm, and Salvatore Morelli
In this blog post, the authors of a new report discuss their research on patterns of wealth transfers across generations and the role this plays in wealth accumulation.
Wealth transfers between the generations give rise to a variety of normative and practical issues with respect to taxation that loom large in current debates. These transfers are most often studied and debated in their different national contexts, but in our study — “The Wealth of Families: The Intergenerational Transmission of Wealth in Britain in Comparative Perspective,” published last month by the Institute for New Economic Thinking/Oxford — we instead apply a comparative lens to household survey data on inheritance and gifts inter vivos in seven rich countries collected between 2010 and 2014: Great Britain, France, Germany, Ireland, Italy, Spain, and the United States. This provides a comparative window on the critical question of how much intergenerational transfers contribute to wealth inequality in rich countries, which continues to be hotly debated in the academic literature.
Key Features of Wealth Transfers in Rich Countries
About one-third of households reported receiving an intergenerational wealth transfer at some point in the past across most of the countries we studied, but that figure was only 19 percent in the United States. The average aggregate amount received was consistently much higher than the median as very large receipts boosted the average. Most wealth was transferred via inheritances rather than gifts in Britain, Ireland, Italy, Spain, and the United States, whereas for France and Germany about one-third of the total reported amount received was via gifts. The likelihood of having received an inheritance or gift increased with wealth rank across these countries, as did the average amounts received. Households in the top 1 percent received as much as 18 percent of the total amount transferred in Germany and the United States, whereas the share going to the bottom quarter was very low (Figure 1, in report). However, by no means everyone in the top 1 percent had received such transfers: in the United States only 39 percent had done so.
Intergenerational Transfers and Household Wealth
The influence of having received intergenerational transfers on the household’s current level of wealth is critically important but very difficult to assess reliably. The average wealth of transfer recipients is much higher than that of non-recipients in all countries, with that gap being particularly wide in the United States. When we control statistically for differences in age, education, and household size, the wealth gap between recipients and non-recipients narrows but remains substantial. While receipt of a transfer of any size is associated with a higher rank in the wealth distribution, that gap is considerably greater for the largest transfers.
Intergenerational Transfers and Household Wealth Inequality
Assessing the influence of wealth transfers on overall wealth inequality is even more complex, with some recent studies concluding that inheritance is actually equalizing rather than dis-equalizing. We employ influence function regression methods to capture the effect that a marginal increase in the number of households in receipt of transfers would have on the overall shape of the wealth distribution, holding constant the wealth distributions conditional on the transfer. The results suggest that having more recipients of small or medium-sized transfers would indeed be expected to reduce wealth inequality modestly. This reflects the fact that those transfer recipients are more concentrated around the middle of the wealth distribution than non-recipients. In contrast, increasing the proportion of recipients of large transfers generally increased overall wealth inequality. This highlights a crucial heterogeneity in impact depending of the size of the transfers that has not been recognized in the research literature.
About the Authors:
- Brian Nolan is Director of Employment, Equity and Growth at The Institute for New Economic Thinking (INET), a professor of social policy at University of Oxford, and a Stone Center Affiliated Scholar.
- Juan Palomino is a research officer at INET at the University of Oxford.
- Philippe Van Kerm is a professor of social inequality and social policy at the University of Luxembourg and a Stone Center Affiliated Scholar.
- Salvatore Morelli is the director of The GC Wealth Project and a Stone Center Senior Scholar.
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