How do Inheritances Shape Wealth Inequality? Theory and Evidence from Sweden

119 Pages Posted: 15 Jun 2018 Last revised: 9 Apr 2021

See all articles by Arash Nekoei

Arash Nekoei

Stockholm University - Institute for International Economic Studies (IIES)

David Seim

Stockholm University; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: March 28, 2019

Abstract

We use a quasi-experimental design and Swedish administrative data to document that the average heir depletes her inheritance within a decade while the inheritances of wealthy heirs remain intact. These different depletion rates are not due to different consumption or labor supply responses but due to different rates of return on inherited wealth. Upon their receipt, inheritances reduce relative measures of wealth inequality, such as top shares or percentile ratios. Theoretically, this reduction in inequality could be due to either a compressed inheritance distribution or similar chances of having wealthy parents (high intergenerational mobility). Empirically, the first force is more significant in Sweden. Within a decade, however, the effect is reversed: inheritances increase wealth inequality since the different depletion rates widen the inequality in inherited wealth over time. This implies that inheritance taxation can reduce long-run wealth inequality only through the taxation of wealthy heirs.

Suggested Citation

Nekoei, Arash and Seim, David, How do Inheritances Shape Wealth Inequality? Theory and Evidence from Sweden (March 28, 2019). Available at SSRN: https://ssrn.com/abstract=3192778 or http://dx.doi.org/10.2139/ssrn.3192778

Arash Nekoei

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

David Seim (Contact Author)

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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