The Principle of Dynastic Succession in Wealth Transmission

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Thu. 11.04.'24 15:05



Abstract :

Mounting research documents that wealth strongly persists across generations. Transfers from parents to children in the form of inheritances and gifts are key contributors to this persistence (e.g. Adermon, Lindahl, and Waldenström 2018). Affluent families pass more wealth to their children compared to families at the lower end of the wealth distribution, thereby maintaining their fortunes and reproducing their privileged position over time.

Intergenerational transfers are yet not only made unequally between families. It has been shown that a substantial share of intergenerational transfers is also made unequally within families (e.g. Francesconi, Pollak, and Tabasso 2023). Such inequality in the division of gifts and bequests stands in contrast to conventional beliefs and attitudes in favor of an equal division of wealth amongst the next generation. In this study, we address this puzzle of unequal division by empirically investigating the distribution of intergenerational transfers through the lens of what we call the ‘principle of dynastic succession’.

The principle of dynastic succession captures to what extent and by which means families pass their wealth unequally to their descendants. By unequally transferring their wealth, families prevent their wealth from being split and “diluted”, leading to intergenerational wealth perpetuation. Drawing on recent findings from ethnographic research, we argue that unequal division is particularly salient in the presence of “structuring assets” (Bessière and Gollac 2023). Structuring assets are constitutional to a family’s fortune and most likely to include land, family businesses, and real estate. Thus, to make their wealth “endure” (Beckert 2022), these assets ought not to be split but kept together and transferred as a whole.

We ask the following research questions: To what extent is there systematic evidence for the principle of dynastic succession? Who benefits from the principle of dynastic succession? What does the principle of dynastic succession mean for inequality in intergenerational transfers?

To answer these questions, we use data from the German inheritance and gift tax register (2007-2020). These data allow us to examine the division of estates for the full universe of tax-relevant transfers (N=902,877).

Preliminary findings are in line with the principle of dynastic succession. We find that the share of estates that are unequally divided between the number of eligible heirs increases along the estate distribution. Moreover, the share of estates with business wealth also rises as the value of estates increases, suggesting that estates that are unequally divided are likely to contain structuring assets.