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Poor Little Rich Kids? - The Determinants of the Intergenerational Transmission of Wealth

Author

Listed:
  • Sandra E. Black
  • Paul J. Devereux
  • Petter Lundborg
  • Kaveh Majlesi

Abstract

Wealth is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use administrative data on the net wealth of a large sample of Swedish adoptees merged with similar information for their biological and adoptive parents. Comparing the relationship between the wealth of adopted and biological parents and that of the adopted child, we find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for genetics. We also examine the role played by bequests and find that, when they are taken into account, the role of adoptive parental wealth becomes much stronger. Our findings suggest that wealth transmission is not primarily because children from wealthier families are inherently more talented or more able but that, even in relatively egalitarian Sweden, wealth begets wealth.

Suggested Citation

  • Sandra E. Black & Paul J. Devereux & Petter Lundborg & Kaveh Majlesi, 2015. "Poor Little Rich Kids? - The Determinants of the Intergenerational Transmission of Wealth," Working Papers 201516, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:201516
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    File URL: http://hdl.handle.net/10197/7150
    File Function: First version, 2015
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Poor Little Rich Kids? – The Determinants of the Intergenerational Transmission of Wealth
      by maximorossi in NEP-LTV blog on 2015-11-06 23:05:45

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    1. repec:eee:jeborg:v:142:y:2017:i:c:p:404-424 is not listed on IDEAS
    2. Lindahl, Mikael & Björkegren, Evelina & Palme, Mårten & Simeonova, Emilia, 2016. "Parental Influences on Health and Longevity: Lessons from a Large Sample of Adoptees," IZA Discussion Papers 9688, Institute for the Study of Labor (IZA).
    3. Simon Halphen Boserup & Wojciech Kopczuk & Claus Thustrup Kreiner, 2018. "Born with a Silver Spoon? Danish Evidence on Wealth Inequality in Childhood," Economic Journal, Royal Economic Society, vol. 128(612), pages 514-544, July.
    4. Adermon, Adrian & Lindahl, Mikael & Waldenström, Daniel, 2016. "Intergenerational Wealth Mobility and the Role of Inheritance: Evidence from Multiple Generations," IZA Discussion Papers 10126, Institute for the Study of Labor (IZA).
    5. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2016. "Heterogeneity and Persistence in Returns to Wealth," EIEF Working Papers Series 1615, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2016.
    6. Andreas Fagereng & Magne Mogstad & Marte Rønning, 2015. "Why do wealthy parents have wealthy children?," Discussion Papers 813, Statistics Norway, Research Department.
    7. Winfried Koeniger & Julien Prat, 2018. "Human Capital and Optimal Redistribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 1-26, January.
    8. Dionissi Aliprantis & Daniel R. Carroll, 2012. "Neighborhood dynamics and the distribution of opportunity," Working Papers (Old Series) 1212, Federal Reserve Bank of Cleveland, revised 01 Feb 2013.
    9. Christiane Gross & Kerstin Lorek & Friedemann Richter, 2017. "Attitudes towards inheritance taxation – results from a survey experiment," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(1), pages 93-112, March.
    10. Jing You & Miguel Niño-Zarazúa, 2017. "Smoothing or strengthening the ‘Great Gatsby Curve’? The intergenerational impact of China’s New Rural Pension Scheme," WIDER Working Paper Series 199, World Institute for Development Economic Research (UNU-WIDER).
    11. M. Shahe Emran & William Greene & Forhad Shilpi, 2018. "When Measure Matters: Coresidency, Truncation Bias, and Intergenerational Mobility in Developing Countries," Journal of Human Resources, University of Wisconsin Press, vol. 53(3), pages 589-607.
    12. Knüpfer, Samuli & Rantapuska, Elias & Sarvimäki, Matti, 2017. "Why does portfolio choice correlate across generations," Research Discussion Papers 25/2017, Bank of Finland.
    13. Guido Neidhöfer, 2016. "Intergenerational Mobility and the Rise and Fall of Inequality: Lessons from Latin America," CEDLAS, Working Papers 0196, CEDLAS, Universidad Nacional de La Plata.
    14. Jo Blanden & Stephen Machin, 2017. "Home ownership and social mobility," CentrePiece - The Magazine for Economic Performance 508, Centre for Economic Performance, LSE.
    15. Haile, Getinet Astatike, 2016. "Intergenerational Mobility in Income and Economic Status in Ethiopia," IZA Discussion Papers 10047, Institute for the Study of Labor (IZA).
    16. von Werder, Marten, 2018. "Intergenerational transfers: How do they shape the German wealth distribution?," Discussion Papers 2018/15, Free University Berlin, School of Business & Economics.
    17. Hällsten, Martin & Pfeffer, Fabian T., 2017. "Grand advantage: family wealth and grandchildren's educational achievement in Sweden," Working Paper Series 2017:3, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    18. Driouchi, Ahmed & Gamar, Alae, 2016. "The Gap between Educational & Social Intergenerational Mobility in Arab Countries," MPRA Paper 73998, University Library of Munich, Germany.

    More about this item

    Keywords

    Nature versus nurture; Wealth transmission;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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