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

122 Pages Posted: 16 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: 2021

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 com-pressed inheritance distribution or similar chances of having wealthy parents (high inter-generational 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 (2021). CESifo Working Paper No. 9017, Available at SSRN: https://ssrn.com/abstract=3830222 or http://dx.doi.org/10.2139/ssrn.3830222

Arash Nekoei (Contact Author)

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

Stockholm, SE-10691
Sweden

David Seim

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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