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Research Desk: Did the top 1 percent inherit its wealth?

at 02:21 PM ET, 11/04/2011

Commenter ToddinHB asks:

How many of the 1% inherited their money, made their fortunes with a sizable trust fund, or made their money manipulating the financial system, without adding anything to the general welfare of the state?

New York University economist Edward Wolff has done the best work I’ve seen on the contribution of inheritance to wealth inequality, and his latest paper, coauthored with the Bureau of Labor Statistics’ Maury Gittleman, is chock full of relevant data on the matter. In 2007, the last year Wolff and Gittleman look at, wealth transfers (mainly inheritances, but also including gifts) made up, on average, 14.7 percent of the total wealth of the 1 percent (more specifically, the top 1 percent in terms of wealth). Interestingly, inheritance’s share has declined over time. In 1992, 27 percent of the wealth of the top 1 percent came from wealth transfers.

Wolff and Gittleman also find that because wealth transfers generally make up a bigger portion of the wealth of poor and middle-class people, they actually reduce wealth inequality, in aggregate. “Our simulations show that eliminating inheritances either in full or in part actually increases overall wealth inequality and, in particular, sharply reduces the share of the bottom 40 percent of the wealth distribution,” they write. So while there’s no doubting that the rich are inheriting a lot of money — 14.7 percent of the wealth of the top 1 percent isn’t nothing, after all — it remains the case that inheritance does not increase wealth inequality.

 
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