The (Un)Importance of Inheritance
Transfers from parents—either in the form of gifts or inheritances—have received much attention as a source of inequality. This paper uses a 19-year panel of administrative data for the population of Norway to examine the share of the Total Inflows available to an individual (defined as the capitalized sum of net labor income, government transfers, and gifts and inheritances received over the period) accounted for by capitalized gifts and inheritances. Perhaps surprisingly, we find that gifts and inheritances represent a small share of Total Inflows; this is true across the distribution of Total Inflows, as well as at all levels of net wealth at a point in time. Gifts and inheritances are only an important source of income flows among those who have very wealthy parents. Additionally, gifts and inheritances have very little effect on the distribution of Total Inflows – when we do a counterfactual Total Inflows distribution with zero gifts and inheritances, it is not much different from the actual distribution. Our findings suggest that inheritance taxes may do little to mitigate the extreme wealth inequality in society.
Some of the contents of the working paper “Where Does Wealth Come From?” (NBER Working Paper 28239) has been subsumed into this paper. This work was partially supported by the Research Council of Norway through its Centres of Excellence Scheme, FAIR project No 262675 and by the NORFACE DIAL grant 462-16-090. We thank seminar participants from Columbia Women’s Applied Micro Seminar, St. Andrews, USC, PSE, National University of Singapore, Harvard Business School NOM, Yale, and Mannheim for helpful suggestions. We also thank Doug Almond, Erik Hurst, Wojciech Kopczuk, Mikael Lindahl, Arash Nekoei, Thomas Piketty, Luis Bauluz, and David Seim for helpful discussions. Finally, we thank Bhargav Gopal for his excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.