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The impact of inheritance on the distribution of wealth: evidence from the UK

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  • Karagiannaki, Eleni

Abstract

In this paper we examine how the distribution of wealth has been changing in UK over the period 1995 to 2005 and how the sum of inheritance received between 1996-2004 contributed to the observed trends in wealth accumulation and wealth inequality. Using data from the British Household Panel Survey we find that the period 1995-2005 was a period of substantial growth in net worth and of a substantial decrease in wealth inequality recorded in the survey. The main driver behind both trends was the rise in house prices and the resulting increase in the housing equity of middle wealth-holders. Inheritances received between 1996 and 2004 contributed about 10 to 15 per cent (depending on the capitalisation assumption) of the average household wealth accumulation that occurred during 1995-2005 and somewhere between 26 and 30 per cent of the wealth accumulation of inheriting households (and possibly more if we could account for the rate of returns on early inheritance used by some to finance house purchase). Inheritances were highly unequal and had a positive (but rather small) correlation with pre-inherited wealth. This meant that inherited wealth accounted for part of the observed inequality of net worth in 2005. However, some significant inheritors started with low initial wealth (and this was true within each age group). Inheritance in the period therefore weakened the relationship between non-inherited wealth and the final total. The net effect was therefore that inheritances in the previous decade had a mild equalizing impact on 2005 net worth inequality. However given the small magnitude of these effects and the uncertainty about the behavioural responses to inheritances, inheritance can probably best be seen as maintaining wealth inequalities rather than either narrowing or widening them.

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  • Karagiannaki, Eleni, 2011. "The impact of inheritance on the distribution of wealth: evidence from the UK," LSE Research Online Documents on Economics 43895, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:43895
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    File URL: http://eprints.lse.ac.uk/43895/
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    1. Gokhale, Jagadeesh & Kotlikoff, Laurence J. & Sefton, James & Weale, Martin, 2001. "Simulating the transmission of wealth inequality via bequests," Journal of Public Economics, Elsevier, vol. 79(1), pages 93-128, January.
    2. Karagiannaki, Eleni, 2011. "Recent trends in the size and the distribution of inherited wealth in the UK," LSE Research Online Documents on Economics 43868, London School of Economics and Political Science, LSE Library.
    3. repec:cep:sticas:/146 is not listed on IDEAS
    4. Edward Wolff & Maury Gittleman, 2014. "Inheritances and the distribution of wealth or whatever happened to the great inheritance boom?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(4), pages 439-468, December.
    5. Davies, James B. & Shorrocks, Anthony F., 2000. "The distribution of wealth," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 11, pages 605-675, Elsevier.
    6. Horioka, Charles Yuji, 2009. "Do bequests increase or decrease wealth inequalities?," Economics Letters, Elsevier, vol. 103(1), pages 23-25, April.
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    Cited by:

    1. Elinder, Mikael & Erixson, Oscar & Waldenström, Daniel, 2018. "Inheritance and wealth inequality: Evidence from population registers," Journal of Public Economics, Elsevier, vol. 165(C), pages 17-30.
    2. McKnight, Abigail, 2014. "Disabled people’s financial histories: uncovering the disability wealth-penalty," LSE Research Online Documents on Economics 58041, London School of Economics and Political Science, LSE Library.
    3. repec:cep:sticas:/181 is not listed on IDEAS
    4. Abigail McKnight, 2014. "Disabled People’s Financial Histories: Uncovering the disability wealth-penalty," CASE Papers case181, Centre for Analysis of Social Exclusion, LSE.
    5. Bastagli, Francesca & Hills, John, 2012. "Wealth accumulation in Great Britain 1995-2005:the role of house prices and the life cycle," LSE Research Online Documents on Economics 51286, London School of Economics and Political Science, LSE Library.
    6. repec:cep:sticas:/166 is not listed on IDEAS
    7. N. Klevmarken, 2014. "Book Review of Wealth in the UK. Distribution, Accumulation and Policy," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(3), pages 429-433, September.

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    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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