Private Wealth Across European Countries: The Role of Income, Inheritance and the Welfare State
In multilevel cross country regressions, we find that the degree of welfare state activity across countries is negatively correlated with net wealth in private households. These findings suggest that social services provided by the state are substitutes for private wealth accumulation and, in contrast to other academic findings partly explain observed differences in levels of household net wealth across European countries. In particular, the effect of substitution decreases with wealth, as it is mostly the less wealthy households which increase consumption when the state provides a strong safety net. This implies that an increase in welfare state activity might go along with an increase - not decrease - of observed wealth inequality. Our policy conclusion is that isolated normative judgments of wealth inequality are misleading.