The long-term implications of destruction during the Second World War on private wealth in Germany

Abstract

By the end of the Second World War, an estimated 20% of the West German housing stock had been destroyed. Building on a theoretical life-cycle model, this paper examines the persistent consequences of the war for individual wealth across generations. As our empirical basis, we link a unique historical dataset on the levels of wartime destruction in 1739 West German cities with micro data on individual wealth at the beginning of the twenty-first century from the German Socio-Economic Panel. Among individuals born in cities or villages that were badly damaged during the Second World War, wealth is still about 10% lower today. Similarly, the destruction of parental birthplace has significant negative implications for the wealth of their descendants. These negative implications are robust after controlling for a rich set of pre-war regional and city-level control variables. In complementary empirical exercises, we study potential channels such as inheritances, health, and education, through which the wartime destruction could have affected wealth accumulation across generations.