The Role of Bequests in Shaping Wealth Inequality: Evidence from Danish Wealth Records

Abstract

Using Danish administrative data, we estimate the impact of bequests on the level and inequality of wealth. We compare the distributions of wealth over time of people whose parent died and those whose parent did not. Bequests account for 26 percent of the average post-bequest wealth 1-3 years after parental death and significantly affect wealth throughout the distribution. Bequests increase absolute wealth inequality (variance of the distribution censored at the top/bottom 1% increases by 33 percent), but reduce relative inequality (the top 1% share declines by 6 percentage points from the base of 31 percent).

Wealth Inequality and Accumulation

“…Wealth transformations are therefore not an incidental technical decision, but a conceptual choice with potential consequences for substantive conclusions. For instance, whether bequests increase wealth inequality (Boserup et al 2016, Karagiannaki Forthcoming) and whether whites experience greater wealth benefits of homeownership than African-Americans and Hispanics (Killewald & Bryan 2016) depend on whether comparisons are made in absolute or relative terms. Thus, scholars should justify their operationalization choices and consider whether substantive conclusions change with alternative transformations of net worth.…”

Time Discounting and Wealth Inequality

“…We use established incentivized experimental elicitation methods to measure patience -defined as behaviorally revealed time discounting -and other behavioral parameters. The Danish administrative data provides longitudinal information about individuals' real-life wealth and income as well as detailed background information relevant for understanding wealth formation (Leth-Petersen 2010; Boserup et al 2016).…”

Differences in Wealth, Evidence from Structural Regression Decomposition, 1850-1870

“…Brimmer (1988) used 1984 US census data to find that blacks held 7.2 percent of US income and only three percent of US wealth. Additionally, Wolff (1992) uses SCF, SFCC, andSIPP data from 1940 -1988 to show that blacks possessed between 13-23 percent of white mean wealth and 4-10 percent of white median wealth. Wolff (1998) affirms his earlier results using SCF data.…”

“…Franklin & Smith (1977) used 1967 DC Estate Records to show that black and white net worth also differed when controlling for average income. Wolff (1992) uses SCF, SFCC, and SIPP from 1940-1988 to show that the black-white difference in net worth exceeded differences in income. The black-white income ratio held or rose to 60 percent from 1940 to 1985 while the black-white ratio of net worth was below 25 percent from 1962 to 1988.…”

“…Wolff (1992) uses SCF, SFCC, and SIPP from 1940-1988 to show that the black-white difference in net worth exceeded differences in homeownership. The black-white homeownership ratio held or rose to 60 percent from 1940 to 1985 while the black-white ratio of net worth was below 25 percent from 1962 to 1988.…”