Why Is It So Difficult to Counteract Rising Wealth Inequality?

About this Session


Fri. 08.04. 14:45



Speaker: Mads Andreas Elkjaer, Co-Authors: Ben Ansell, Laure Bokobza, Asli Cansunar, Matthias Haslberger, Jacob Nyrup

Taxing inheritances is an effective way of abating rising wealth inequality, yet across advanced economies inheritance tax rates have dropped significantly in recent decades. Why is it so difficult to politically address rising wealth inequality? To help answer this question we study preferences over inheritance taxation using an original survey from England and Wales. We argue that it is difficult to tax inheritances for two reasons. First, many people don’t have strong preferences regarding inheritance taxation, and the people who do are more likely to come from higher socio-economic groups. There is thus a paradox in that the people who would stand to gain the most from taxing inheritances are those least likely to have an opinion on it. Second, rising house prices mean that more people expect to pass on larger inheritances to their children and that more people expect to inherit larger estates, putting downward pressure on inheritance taxes.
Using non-experimental and experimental methods, we show that homeowners with more expensive houses and people whose parents own more expensive properties are less supportive of inheritance taxation. After empirically demonstrating our argument, we examine what happens when we randomly inform people about the level of wealth inequality locally and/or nationally. We find that our information treatment does not alter peoples’ preferences: preferences over inheritance taxation appear sticky, making it difficult to mobilize political support to address rising wealth inequality. The paper helps explain why addressing rising wealth inequality is politically difficult and thereby contributes to an increasingly salient debate.