Staying Rich or Getting Richer? Inheritance and Private Wealth Accumulation in 13 European Countries
In examining the main sources of wealth in 13 different European countries, this article turns to the importance of inheritances and gifts (collectively “wealth transfers”) for wealth accumulation through a comparative lens. It builds on a recently released data set – the Eurosystem´s Household Finance and Consumption Survey (HFCS) – that is not only roughly representative of the euro area but also ex-ante harmonized. The main questions this article seeks to answer are: What is the relative importance of wealth transfers as a contributor to the stock of private wealth across European countries? What is inherited in different countries? Do households at different segments of the wealth distribution benefit to the same extent from inheritances/gifts, or do wealth transfers impact wealthieness only in the case of socially advantaged households?
What has been largely neglected so far is the question of who benefits most from inheritance most. A share of 50 % of inheritances in the stock of private wealth could refer to very different scenarios: the share may be 50 % for everybody in the population or the top quintile of wealth holders may own three-quarters of total assets. Furthermore studies that examine the impact of inheritance on savings and consumption are rare. Findings by Joulfaian (2006) suggests that the wealth of heirs increase less than the full amount of the inheritance received. Zagorsky (2013) estimates that roughly half of all money inherited is saved. Martinello´s main finding from Danish administrative records is that heirs deplete their excess of wealth in the long run by slacking saving efforts and increasing consumption (Martinello 2014).
The article settles on a definition of wealth transfers that does not take into account the rates of return on capital bequests. The reason therefore is that assuming a single rate of return (e.g. 3 per cent) might turn out to be low for some households in some countries (home owners profiting from house price growth) and too high for others in other countries (owners of modest dwellings). The first part of the analysis, which analyzes the share of inheriting households, the composition of wealth transfers and its size along the net wealth distribution for each country, is based on visual representations of descriptive statistics. The second part, examines the effect of inheritance on net wealth, using quantile regression (QR) that was first introduced by Koenker and Bassett (1978) as an extension of the classical least square estimation (OLS). Unlike the OLS estimators, QR allows looking beyond the average by providing a description of the whole conditional distribution of the dependent variable given a set of explanatory variables.
All results provide sufficient ground to contest previous claims that the effect of inheritance on accumulated wealth is not likely to vary cross-nationally (Semyonov/Lewin-Epstein 2013).
The proportion of households having received gifts or bequests amounts to about thirty percent in the Euro Area. National variations become clearly evident if patterns along the net wealth distribution are considered. While there is a uniform gradient in the chances of inheriting across wealth quintiles (“To him that hath shall be given”), the gradient is particular strong in countries such as Italy, Austria, Germany, Luxembourg, and France. At the top quintile, for example, the share of inheriting households amounts to about 65 percent in Austria, while the corresponding share lies within the range of 40 and 44 percent in Greece and Portugal.
Although the descriptive findings reveal large within-country differences in the distribution of inheritance, they do not inform us on the extent to which the reception of inheritance effectively contributes to net wealth independently of labor and income flows as well as socio-demographic characteristics of households.
Median regression that controls for other potential influences reveals for every country a significant impact of inheritance, albeit on different levels. Besides the median, QR also investigates the tails, in particular the lower and upper quantiles. In the cases of Austria, France, and Germany we see relevant discrepancies of the quantile coefficient for inheritance if the 80th or/and the 90th percentile is compared to the 20th percentile (or the median). In Austria and France the results from QR suggest higher contributions of inheritance to net worth in the upper echelons of wealth. For Cypres we can observe a similar increasing impact but due to the estimated uncertainty of the coefficient slope differences turn out not to vary significantly. Results for Germany indicate the exact opposite. It is above all at the bottom of the net wealth distribution in Germany that we can detect the most intense nexus between inheritance and private wealth accumulation. Even if this finding is consistent with other studies (Kohli et al. 2006), it should be interpreted with caution. It merely indicates that savings out of labor income do not suffice to build up even modest asset portfolios while wealth transfers boost the meager possessions.
Even if it remains to be seen if future HFCS waves confirm these country differences, much suggests that investigations into the European varieties of inheritance regimes are a futile undertaking. As there is, however, no agreement how to exactly calculate the present value of wealth transfers, the article examines all results by also using different value adjustments such as transforming the value of monetary inheritances only into 2010 euro values. The implications of these transformations on all results are discussed in great detail.
Joulfaian , David, 2006:Inheritance and Saving. NBER Working Papers, National Bureau of Economic Research. Cambridge, MA.
Koenker, Roeger/Gilbert Bassett, 1978: Regression Quantiles. In: Econometrica 46, 33-50.
Martinello, Alessandro, 2014: Inheritances and saving patterns. The long-run effects of cash-on-hand on wealth accumulation, unpublished working paper, Lund University.
Semyonov, Moshe/Noah Lewin-Epstein, 2013: Ways to Richness: Determination of Household Wealth in 16 Countries. In: European Sociological Review 29, 1134-1148.
Zagorsky, Jay L., 2013: Do People Save or Spend Their Inheritance? Understanding What Happens to Inherited Wealth. In: Journal of Family and Economic Issues 34, 64-76.