Chapter 15. Wealth and Inheritance in the Long Run

This chapter offers an overview of the empirical and theoretical research on the long-run evolution of wealth and inheritance. Wealth–income ratios, inherited wealth, and wealth inequalities were high in the eighteenth to nineteenth centuries up until World War I, then sharply dropped during the twentieth century following World War shocks, and have been rising again in the late twentieth and early twenty-first centuries. We discuss the models that can account for these facts. We show that over a wide range of models, the long-run magnitude and concentration of wealth and inheritance are an increasing function of r ¯ − g where r ¯ is the net-of-tax rate of return on wealth and g is the economy's growth rate. This suggests that current trends toward rising wealth–income ratios and wealth inequality might continue during the twenty-first century, both because of the slowdown of population and productivity growth, and because of rising international competition to attract capital.