Few economic questions are as politically charged as whether inheritances make society more or less equal. On one side, the sheer scale of wealth passed between generations has surged in recent decades. On the other, economists have repeatedly found that inheritances tend to narrow relative gaps in wealth, because middle-class households receive modest sums that nudge them closer to richer neighbors. So which is it?
A new study in the Journal of Public Economics suggests the answer depends almost entirely on how big the inheritance is. Modest and middling transfers tend to shrink wealth inequality. But once an inheritance crosses a certain threshold, it flips direction and starts widening the gap. The researchers pin down exactly where that threshold sits in six wealthy countries, and compare each figure with the tax exemption levels those governments have already chosen.
A Question With Mixed Answers
Salvatore Morelli of Roma Tre University, along with Brian Nolan (Oxford), Juan C. Palomino (Complutense Madrid), and Philippe Van Kerm (University of Luxembourg and LISER), set out to resolve a puzzle in the academic literature. Some studies had concluded that inheritances are equalizing. Others, using different counterfactual comparisons or longer time horizons, had found the opposite. The authors suspected that lumping all inheritances together was obscuring something important: the distinction between a grandparent leaving $30,000 and a family dynasty passing down $5 million.
To test this, they used survey data from around 2010 covering Germany, Spain, France, Italy, Great Britain, and the United States. The surveys asked households in detail about assets, debts, and any inheritances or substantial gifts received over their lifetimes. Roughly one-third of households in the European countries reported receiving some transfer; in the United States, only about one in five did.
Measuring the “Influence” of Each Household
The researchers used a technique called influence function regression. The idea is more intuitive than it sounds. Imagine the wealth distribution as a crowd of people lined up from poorest to richest. Each person’s position exerts a kind of pull on overall inequality. Those stuck at the very bottom with near-zero wealth push inequality upward. Those at the extreme top also push it upward. But people clustered in the middle actually pull inequality downward, because they fill in the space between the extremes.
The question then becomes: where do inheritance recipients tend to sit? If past inheritances put people mostly in the middle of the wealth distribution, more recipients would mean less inequality. If inheritances concentrate recipients at the very top, more recipients would mean more inequality.
The authors ran regressions estimating how a hypothetical 10-percentage-point increase in the share of recipients would shift the Gini coefficient, a standard measure of inequality. They ran the analysis both overall and broken down by the size of transfers received.
The U-Shaped Pattern
When transfers were lumped together, the results matched the conventional wisdom: in most countries, having more recipients would modestly reduce wealth inequality. Germany showed the strongest effect, with a 10-point increase in recipients lowering the Gini by about 0.02.
But once the authors split transfers by size, a different picture emerged. Recipients of small transfers (below the median) and medium transfers (up to the 90th percentile) sat predominantly in the middle of the wealth distribution. Adding more of them reduced inequality. Recipients of truly large transfers, however, were clustered at the top of the wealth distribution. Adding more of them increased inequality.
The flip occurred above the 95th percentile of each country’s transfer distribution. In Germany, for example, a 10-point increase in recipients of very large transfers would push the Gini up by roughly 0.1 points.
Putting a Dollar Figure on “Large”
Using smooth non-parametric estimates, the authors identified the exact monetary threshold at which transfers switch from equalizing to disequalizing in each country. Expressed in local currency at the time of the surveys, those thresholds are:
- United States: $507,000
- Italy: €429,000
- Germany: €395,000
- Great Britain: £343,000
- France: €295,000
- Spain: €172,500
These figures represent the cumulative value of all transfers an individual has received over their lifetime, adjusted to current prices.
How Tax Policy Compares
The authors then benchmarked these empirical thresholds against the inheritance tax exemption levels actually in place in each country around 2011. The comparison produced no consistent pattern.
In Germany and Great Britain, the statutory exemption thresholds for children (€400,000 and £325,000, respectively) sit remarkably close to the researchers’ disequalizing thresholds. In France and Spain, the exemptions are substantially lower than the disequalizing point, meaning taxes kick in on transfers that, according to the analysis, are still inequality-reducing. In Italy and the United States, the opposite holds: exemptions of €1 million and $5 million (rising to $11.7 million by 2021) far exceed the disequalizing threshold, meaning many transfers that the analysis flags as inequality-widening escape taxation entirely.
Viewed against each country’s overall wealth distribution, the tax exemptions in Germany, Italy, and the United States correspond to the 91st, 97th, and 99th wealth percentiles. The researchers note that these exemptions are, in their words, “extremely generous” relative to the national wealth distribution.
What the Findings Suggest for Policy
The authors connect their results to ongoing policy debates. A 2021 OECD report argued for recipient-based inheritance taxes with exemptions for small transfers, on the grounds that small inheritances can have equalizing effects. The authors’ estimates give that principle a concrete numerical anchor: set the exemption somewhere near the 95th percentile of the national transfer distribution, and the tax will fall on transfers that are, in expectation, widening inequality rather than narrowing it.
The study also speaks to proposals for “universal inheritance” schemes, which would effectively broaden the pool of recipients. Because adding more recipients of small and medium transfers tends to reduce inequality, such schemes would pull in the equalizing direction, consistent with arguments made by economists like Anthony Atkinson and Thomas Piketty.
Several caveats apply. The analysis captures associations rather than causal effects; the researchers measure how inequality would respond to hypothetical marginal changes in the composition of recipients, not the behavioral responses of heirs, donors, or markets. Wealth surveys are also known to under-capture the very top of the distribution, though the authors argue that adjustments for this problem have modest effects on the Gini coefficient in most of the countries they study. And the disequalizing thresholds depend on each country’s particular distribution of wealth and transfers, so they would shift over time as those distributions evolve.
Still, the central message is striking in its simplicity. Inheritances are not uniformly equalizing or disequalizing. A modest bequest to a middle-income family pulls the distribution tighter; a multimillion-dollar transfer to an already-wealthy heir stretches it further apart. The line between those two worlds, the researchers show, can actually be measured, and it sits in a place that current tax codes have, for the most part, failed to reach.
