Do inheritances increase wealth inequality? Evidence from Dutch long-run survey data

Abstract

This thesis examines the effect of inheritances on wealth inequality. The literature has failed to achieve consensus on the sign of the effect. Studies using descriptive statistical evidence argue for a positive effect, while most studies using econometric techniques find a negative effect. This conflict could be potentially due to the time frame used by most econometric studies. Most of these studies use a time span of at most 16 years, while descriptive statistical studies use data of at least two decades. This thesis uses long-run survey data of almost thirty years of the Dutch Central Bank Household Survey (DHS). This study hypothesises that in the short run wealth inequality decreases due to inheritances, but in the long run inheritances increase wealth inequality. To measure the effect in the short run, this study uses simple accounting identities based on Crawford and Hood (2016). To measure the long-run effect, it uses Maximum Likelihood estimation with logit models. The main finding of this study is that in the short run wealth inequality decreases, but that in the long run the effect on wealth inequality is ambiguous. The implication for economic policy is that taxation of inheritance of less wealthy individuals could increase wealth inequality, while taxation of wealthy inheritors could decrease wealth inequality.