Do Inheritance Customs Affect Political and Social Inequality?

That is a new paper from Anselm Hager and Hanno Hilbig, here is the abstract:

Why are some societies more unequal than others? The French revolutionaries believed unequal inheritances among siblings to be responsible for the strict hierarchies of the ancien régime. To achieve equality, the revolutionaries therefore enforced equal inheritance rights. Their goal was to empower women and to disenfranchise the noble class. But do equal inheritances succeed in leveling the societal playing field? We study Germany—a country with pronounced local‐level variation in inheritance customs—and find that municipalities that historically equally apportioned wealth, to this day, elect more women into political councils and have fewer aristocrats in the social elite. Using historic data, we point to two mechanisms: wealth equality and pro‐egalitarian preferences. In a final step, we also show that, counterintuitively, equitable inheritance customs positively predict income inequality. We interpret this finding to mean that equitable inheritances level the playing field by rewarding talent, not status.

The potentially surprising bit in there is “equitable inheritance customs positively predict income inequality,” emphasis added by this blogger.

For the pointer I thank the excellent Kevin Lewis.

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Seems logical.

Inheritance primarily by the first-born male child (a common strategy) would intuitively result in a net loss of total earning potential unless that child was always the most capable.

I'm guessing you are not familiar with one equitable form, which divides fields into ever smaller pieces, until they become too small to actually support the owner. This seems to be considered a real flaw in Baden's inheritance laws, at least in comparison to the other regions around it.

A Kenyan told me the same thing regarding her experience living there, as both regions seem to have practiced this same method of never ending division through generations.

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Sissy Graydon Carter of failing Vanity Fair Magazine and owner of bad food restaurants has a problem-his V.F. Oscar party is no longer "hot"

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Why not choose freedom of choice instead of government control? Let the parents decide who inherits what. Even if it is inequitable it should be their choice.

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Francis Fukuyama in one of his two "Political Order..." books makes the point that a policy change by the Catholic Church to support a wife inheriting her deceased husband's land, undermined primogeniture and significantly changed society. It also helped fill the coffers of the Catholic Church but emergent order and unexpected consequences took over.

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Another thing about Germany, it a country with pronounced local‐level variation in the dominant religion.

One suspects an overlap, though there are regional variations that do not seem based on religion.

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"equitable inheritances level the playing field"

Why is that surprising?

It's the next step in logic that is surprising, that increased equality in inheritance produces greater inequality in society.

That is hard to wrap my head around, especially in a country with a good safety net and excellent job training.

Note that the excerpt said greater **income inequality**, not **greater inequality in society**. Perhaps that seems like a fine point, but with the other givens, the former is only true during a single generation, whereas the latter would be true multi-generationally. Meaning the income inequality would not be familially persistent.

I suppose so. Zaua has an interesting bit about wealth vs income inequality in Sweden, below.

If the inheritance were divided between savers and consumers I could see it creating longer term inequality.
The saver would save and invest it so their lifetime wealth would increase. But the consumer would just spend it and the only thing they would have left is a larger stock of consumer durables.

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Not sure about about the author's proposed mechanism. The positive correlation could say something about intra-family talent variability ( equitable inheritance) vs. inter-family (sole inheritance).

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If equitable inheritances reward talent, then why not equitably distribute the decedent's wealth to everyone by taxing the wealth at or near a 100% rate? By the way, the term for the first-born legitimate male child receiving the family inheritance is called primogeniture. Historically that meant inheritance of real property. The American colonies followed English primogeniture laws. Those laws were repealed during the revolution, with Thomas Jefferson taking the lead in Virginia. Jefferson's concern was primogeniture (and the related concept of entail, or fee tail) resulted in the concentration of wealth, which he opposed. Indeed, Adam Smith and other advocates of free market economics opposed primogeniture.

In any case, many of the concepts of primogeniture (and entail) survived the repeal of primogeniture laws, including the obligation of the current generation/owner to preserve property for later generations. This led to an underuse of property. I should point out that preservation of wealth in a family is the essential feature of most estate plans for the wealthy, with what's called a "dynasty trust" the vehicle used for that purpose. The dynasty trust is designed so that it is exempt from estate and generation skipping taxes with each successive generation. Will dynasty trusts and the obligation of trustees to preserve the trust corpus for successive generations result in underuse of property? Do dynasty trusts contribute to a deficiency in dynamism in the economy?

It's a myth that there was a primogeniture law in England at the time of Jefferson, except as the default for people who hadn't signed a will. You could leave your assets, including land, to whomever you wanted.

If you had a title of nobility it would (almost always) pass by male primogeniture but you could use your will to divorce the inheritance of wealth from the inheritance of title.

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"why not equitably distribute the decedent's wealth to everyone by taxing the wealth at or near a 100% rate?"

The fallacy is that taxing inheritances at 100% doesn't distribute the money to everybody, it distributes it to the government, which in turn either keeps it for its own purposes or distributes it to its cronies and clients.

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One interesting finding is that wealth inequality does not seem to be very strongly correlated with income inequality. According to the only measure of Wealth Gini I know of, for instance, Scandinavian countries have very low income inequality but actually very high wealth inequality (Sweden’s wealth inequality is higher than China’s): http://www3.weforum.org/docs/WEF_Forum_IncGrwth_2018.pdf. Those Scandinavian countries have also been wealthy for quite some time, allowing more wealth to accumulate, and do not tax inheritances while having very high taxes on earned income. This finding seems to further support the idea that a more equal distribution of wealth can result in more income inequality if it means that people become more motivated to compete to get ahead.

I think you are mistaken.

From the St. Louis Fed:

"When we analyze countries within each group separately, interesting patterns emerge. For instance, income inequality in the U.S. is large, despite the U.S. having one of the highest levels of income per capita in our sample. Specifically, the Gini coefficient of the U.S. was 40.46 in 2010, very close to the average Gini coefficient of African countries in our sample.

In contrast, Nordic countries in Europe—such as Finland and Sweden—have a similar income per capita as that in the U.S., but much lower Gini coefficients."

Here is the link: https://www.stlouisfed.org/on-the-economy/2017/october/how-us-income-inequality-compare-worldwide

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Oh I see you are talking of wealth inequality, and not income inequality. so, wealth must not correlate with income or visa versa.

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It also seems that Sweden abolished its inheritance tax in 2004, which may also account for the wealth gini.

"The Scandinavian country first introduced an inheritance tax in 1885, and by the 1970s it levied a 65% tax on inherited money, one of the highest rates in modern history. But in 2004, in a unanimous vote, Sweden’s parliament abolished its inheritance tax, which by then had fallen to 30%."
https://qz.com/1132857/republican-tax-plan-2017-repealing-the-estate-tax-has-a-swedish-precedent/

So if you like Sweden's wealth gini coefficient, just eliminate inheritance taxes. Thanks for pointing this out, Zaua.

? Scandinavian high wealth inequality is long term and not the result of a policy change 15 years ago.

The gini coefficient on wealth hasn't changed relative to other Nordic countries since enactment. Do some research. Start with OECD data.

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Here is a link for my support: https://www.businessinsider.com/why-socialist-scandinavia-has-some-of-the-highest-inequality-in-europe-2014-10

Show me your support.

At this point, I'm not sure what you're arguing. I'm aware Swedish wealth inequality has not shifted relative to other Scandinavian countries.

I thought you were arguing that Swedish wealth inequality had shifted as a result of a policy change in 2004 ("Sweden abolished its inheritance tax in 2004, which may also account for the wealth gini").

Swedish wealth inequality not being an outlier relative to Scandinavian countries which did not experience this policy change would seem to argue against that explanation?

I think you read something into my comment. If you look above I said: The [Swedish] gini coefficient on wealth hasn't changed relative to other Nordic countries since enactment," No other way to interpret that comment.

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Zaua, What is interesting is that if you were the owner of a Swedish company with international operations, you would find a way to have the income realized in another jurisdiction (via IP transfer, for example) and pay low or no taxes in that jurisdiction, and then, when you die, escape inheritance taxes by having your estate in Sweden.

How many people migrate to Sweden to escape inheritance taxes?

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Within wealthy countries, the correlation between wealth and income inequality is very strong, but it is a negative correlation (the US is a bit of an outlier in being both income and wealth unequal).

Higher wealth equality predicts higher income inequality.

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So is the interpretation that concentrated inheritance that arbitrarily follows birth order creates high income people who (because they are less likely to be talented) in addition to those talented people who will be more likely to earn high incomes? And, talented people are less likely to get a running start with inheritance, so they earn less than they would with an equal share of their parents' estates.

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Thank you for always describing me as excellent

I would personally describe you as a cuck!

meanwhile
the cnn.com creatively rebrands an armed robbery
as a conviction for a 50 dollar theft,
leaving the knife out of the narrative
https://www.nbcnews.com/news/us-news/alabama-man-spent-36-years-behind-bars-after-stealing-50-n1048266

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... this obsession with economic equality issues here clearly betrays a leftist mindset

and of course this leftist worldview is entirely erroneous and severely harmful to society

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If there is gender discrimination in the workforce, regardless of equitable distribution of assets, you would expect women to have less income or assets. Yet there was no control for sex in the study, in other words, part of the results could be explained by gender discrimination in earning opportunities and differential opportunities in deploying inherited assets.

Second, this sounds like we should tax inheritances, as there is no difference on whether the size or composition of inheritances have an impact on future results. Too bad Ivanka.

Third, in addition to the preferences given to inherited assets via stepped up basis, what would the study say about future untaxed wealth distribution through recent changes in the tax code, specifically the opportunity tax zone break that lets capital gains go untaxed. https://www.nytimes.com/2019/08/31/business/tax-opportunity-zones.html?action=click&module=News&pgtype=Homepage

Finally, this sounds like support for a wealth tax because the magnitude of accumulated wealth viz a viz family cohorts doesn't matter as to future outcomes; in other words, if you could take more from the primogeniture son without effect, you should be able to tax all without effect.

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Don’t forget about Epstein even though Tyler is trying to cover up!

meanwhile
the newyorktimes.com reports that m. gladwell
casually runs sub 5 minute miles!
we are skeptical

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By coincidence just before reading this article I learned that "cadet" originally referred to the non-firstborn sons and their descendants, in a society that practices primogeniture.
https://en.wikipedia.org/wiki/Cadet_branch

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Doesn't seem that counterintuitive - more wealth moving to the "first son" holds together family wealth dynasties better, which is a check on capture of society's wealth by a smaller minority of individuals who are highly focused on wealth building?

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