Private Wealth Across European Countries: The Role of Income, Inheritance and the Welfare State

Abstract

Using microdata from the Household Finance and Consumption Survey (HFCS), this study examines the role of inheritance, income and welfare state policies in explaining differences in household net wealth within and between euro area countries. First, about one third of the households in the 13 European countries we study report having received an inheritance, and these households have considerably higher net wealth than those which did not inherit. Second, regression analyses on households' relative wealth position show that, on average, having received an inheritance lifts a household by about 14 net wealth percentiles. At the same time, each additional percentile in the income distribution is associated with about 0.4 net wealth percentiles. These results are consistent across countries. Third, multilevel crosscountry regressions show that the degree of welfare state spending across countries is negatively correlated with household net wealth. These findings suggest that social services provided by the state are substitutes for private wealth accumulation and partly explain observed differences in levels of household net wealth across European countries. In particular, the effect of substitution relative to net wealth decreases with growing wealth levels. This implies that an increase in welfare state spending goes along with an increase-rather than a decrease-of observed wealth inequality.

‘Piketty is a genius, but … ’: an analysis of journalistic delegitimation of Thomas Piketty’s economic policy proposals

“…Similar patterns seem to match recent intense public debates in Germany on the reform of the inheritance taxation characterised by a high degree of public nescience, false beliefs and blurred information campaigns by political actors (Beckert, 2017). The frequent discursive reference to small family businesses in Germany is noteworthy, as it seems to suggest that large portions of wealth are portrayed as bound in enterprises and their withdrawal as harmful to vulnerable citizens, which is found to be empirically not applicable (EZB, 2013;Fessler & Schürz, 2015). Yet, the powerful narrative of current wealth concentrations as being beneficial to 'all of us' or 'the whole society' is reinforced, in fact obscuring the actual political economy of wealth and power.…”

Inherited Advantage: Comparing Households that Receive Gifts and Bequests with Non-receiving Households across the Distribution of Household Wealth in 11 European Countries

“…To date, there is very little reliable knowledge on the role of wealth transfers for private households in Europe, and comparative studies have rarely been undertaken (for an exception see: Semyonov and Lewin-Epstein, 2013;Fessler and Schü rz, 2015). Drawing on recently collected harmonized survey data, this study set out to explore the inheritance-wealth nexus across the whole distribution of household wealth.…”

“…In general, there is evidence that a well-developed welfare state goes hand in hand with lower levels of private wealth. Fessler and Schü rz (2015) established that the negative relationship between welfare state spending and household wealth is stronger at the lower end of the wealth distribution spectrum.…”

“…However, regression estimates of the effect of inheritance on wealth accumulation are difficult to interpret as the highly right-skewed wealth variable must be transformed. Using values from the CDF of wealth instead of absolute wealth values as a dependent variable has proven to be useful in efforts to provide easy-tointerpret results on the effect of receiving wealth transfers (c. Fessler and Schü rz, 2015). As Fessler and Schü rz (2015) note, there are two other advantages to this approach: since richness and poverty are largely relative phenomena, the relative position of each household in respect to all others turns out to be more informative than absolute wealth, and it is less affected by measurement error.…”

Income and Wealth Inequality in Malta

“…In recent years, there have been more papers on the determinants of wealth accumulation and the role of intergenerational transfers in wealth inequality. For example, Fessler and Schürz (2015) examine the role of inheritance, income and welfare state policies in explaining differences in household wealth within and between Eurozone countries. The main conclusion of this paper is that social services provided by the state are substitutes for private wealth accumulation and only partly explain observed discrepancies in the levels of households" net wealth across European countries.…”