Born with a Silver Spoon? Danish Evidence on Wealth Inequality in Childhood

Abstract

We use Danish wealth records from three decades to characterise wealth inequality in childhood, where the main source of wealth is transfers. Wealth holdings are small in childhood but they have strong predictive power for future wealth in adulthood. At age 18, asset holdings of children are more informative than parental wealth in predicting wealth of children when they are in their 40s. We investigate why and rule out that childhood wealth in itself can accumulate enough to explain later wealth inequality. Instead, childhood wealth seems to proxy for intergenerational correlation in savings behaviour and additional transfers from parents. 2 Charles and Hurst (2003) provide estimates of intergenerational wealth mobility for the US using the PSID survey data. They review a few older studies of intergenerational wealth mobility. Recent studies on intergenerational wealth mobility include Black et al. (2015) and Fagereng et al. (2015) who use data for adoptees to study the role of nature versus nature in explaining the intergenerational correlation in wealth. Clark and Cummins (2014) and Adermon et al. (2015) contribute to the growing literature on multigenerational mobility (Solon, 2015) by estimating wealth mobility across multiple generations for the UK and Sweden, respectively.12 The non-linearity at the bottom of the parental distribution probably reflects that the wealth levels of these parents are a bad proxy for their 'true' types. Large negative wealth may reflect involvement in risky investment projects that either have gone wrong or have not paid off yet. Consistent with this hypothesis, we find that self-employed are largely overrepresented in the bottom of the distribution. Additional Supporting Information may be found in the online version of this article: Data S1.

Time Discounting and Wealth Inequality

“…Work on understanding the driving forces behind wealth inequality has mainly focused on differences across people in income processes, earnings capacity, wealth transfers, capital returns and public policy (e.g. Heathcote et al 2009;Piketty 2014;Hubmer et al 2016;Boserup et al 2016Boserup et al , 2018De Nardi and Fella 2017;Benhabib et al 2017Benhabib et al , 2019Fagereng et al 2018). A smaller literature on wealth inequality has studied the impact of preference heterogeneity in macro models (e.g.…”

Distributional Effects of a Wealth Tax under Lifetime‐Dynastic Income Concepts*

“…For example, Björklund et al (2012) find that for Sweden, intergenerational income transmission is remarkably strong at the top of the distribution. See also Boserup et al (2018) for similar evidence for Denmark. The use of the family dynasty as the unit of analysis controls for intergenerational transfer over the lifetime: distributional effects of wealth taxation can be sensitive to the time when parents transfer resources to the next generation, as emphasized by Atkinson and Harrison (1978).…”

New Directions in Measuring Intergenerational Mobility: Introduction

“…One of the greatest challenges in advancing the empirical literature is simply to assemble good data that span at least three generations. Continuing on the subject of wealth inequality, the article by Boserup et al (2018) studies wealth inequality among children in Denmark. An example of the basis for the title's message that 'grandfathers matter(ed)' is that, when the authors apply least squares to the regression of the log of average earnings in the occupation of British sons on the same variables for both their fathers and grandfathers, the father coefficient estimate is 0.285 (with standard error 0.018) and the grandfather coefficient estimate is 0.051 (0.016).…”

“…The article by Adermon et al (2018) reports similar results for intergenerational wealth transmission across three generations from Malm€ o, Sweden. Continuing on the subject of wealth inequality, the article by Boserup et al (2018) studies wealth inequality among children in Denmark. The authors find that wealth at age 18 is a significant predictor of adult wealth.…”