Inheritances and the distribution of wealth or whatever happened to the great inheritance boom?

Abstract

Abstract:We found that on average over the period from 1989 to 2007, 21 percent of American households at a given point of time received a wealth transfer and these accounted for 23 percent of their net worth. Over the lifetime, about 30 percent of households could expect to receive a wealth transfer and these would account for close to 40 percent of their net worth near time of death. However, there is little evidence of an inheritance "boom." In fact, from 1989 to 2007, the share of households reporting a wealth transfer fell by 2.5 percentage points. The average value of inheritances received among all households did increase but at a slow pace, by 10 percent, and wealth transfers as a proportion of current net worth fell sharply over this period from 29 to 19 percent or by 10 percentage points. We also found, somewhat surprisingly, that inheritances and other wealth transfers tend to be equalizing in terms of the distribution of household wealth. Indeed, the addition of wealth transfers to other sources of household wealth has had a sizeable effect on reducing the inequality of wealth. JEL Codes: D31, J15

Intergenerational Transfers and Wealth in the Euro-Area: The Relevance of Inheritances and Gifts in Absolute and Relative Terms

“…In section 4 we argue that a secure investment would be in line with a rate of return of three percent (r = 3%), as this is a capitalization rate quite common in the literature (for example, Wolff & Gittleman 2014 This change of method would have almost no effect on the overall inheritances and gifts as a percent of net worth, the maximum deviation would be in France with +0.9%. For the individual wealth classes all changes are bellow one percent, no patterns are visible.…”

“…However, as Piketty et al use data from the late 19 th and early 20 th century, their results are only of historical interest and not immediately relevant to the 21 st century. Wolff & Gittleman (2014) using the same method, find for the US in 2007 that the present value of transfers as a percent of net worth varies between 20 and 25%. Bönke et al (forthcoming) analyze, in a study similar to this one, the role of inheritances and gifts for the total net worth of West Germany in 2010.…”

“…Our analyzes in section 4, as well as the studies from Piketty et al (2014) and Wolff & Gittleman (2014), are based on the joint distribution of wealth and capitalized wealth transfers, which we use to compute the relative importance of wealth transfers. Only a few studies use comparable data; some studies need additional assumptions in order to apply macroeconomic estimation techniques.…”

“…This deserves an explanation: we assume that at the point in time any household receives a wealth transfer it always has the option to make a secure investment yielding a real rate of return . Hence, similar to Wolff & Gittleman (2014), we calculate the present value of wealth transfers…”

“…The most arbitrary assumption in our analysis is the choice of the real rate of return r. The base rate we choose is r = 3% in accordance to Wolff & Gittleman (2014). Very similar to Wolff & Gittleman,…”