Liberty, Equality, Inheritance? An empirical study of inheritance’s impact on wealth inequality in Norway

Abstract

The intention of this paper is to assess the short-term impacts of inheritance on wealth inequality in Norway. I apply Norwegian population-wide individual-level data from 1994- 2013 to empirically estimate a direct mechanical - and a behaviour adjusted inheritance effect on inequality. I find a substantial reduction in relative inequality, caused by a broad lift in net wealth. Despite the estimated equalising effect in relative terms, I find the absolute dispersion concurrently increases. This apparent paradox arises from the fact that the wealthy heirs inherit less relative to their initial net wealth, yet more in kroner. When accounting for responses to inheritance, such as changes in investment -, saving -, and consumption, I find a reduced effect in terms of the Gini coefficient. This can be explained by that the less affluent consume a larger portion of their inheritance, and from heterogeneous investing behaviour and returns on investment. My results align well with findings from comparable studies, apart from effect sizes being enlarged. However, after conducting various tests I discover that large parts of these size differences stem from differences in the characteristics and quality of the applied data. Finally, in the full-period analysis (1996-2013), I show that the effect of inheritance on relative inequality is consistently equalising but declining over the years, while the picture for the effect on absolute dispersion is much more complex. These observed trends might be attributed to changes in the relative size of inheritances to net wealth, shifts in the distributional characteristics of inheritances, and potential impacts of a gradually rising economic inequality in Norway.