Wealth and inheritance

We use Norwegian administrative panel data on wealth and income between 1993 and 2015 to empirically study lifecycle wealth dynamics, focusing on the wealthiest. On average, the wealthiest start their lives substantially richer than other households in the same cohort, own mostly private equity in their portfolios, earn higher returns, derive most of their income from dividends and capital gains, and save at higher rates. We empirically decompose the roles of different factors behind their wealth. At age 50, the excess wealth of the top 0.1% group relative to mid-wealth households is accounted for in about equal terms by higher saving rates (34%), higher initial wealth (32%), and higher returns (27%), while higher labor income (5%) and inheritances (1%) account for the small residual. We also document significant heterogeneity among the wealthiest: around one-fourth of them—which we dub the “New Money”—start below median wealth but experience rapid wealth growth early in life. Relative to households who started their life rich—the “Old Money”—the New Money are characterized by even higher saving rates and returns and also by higher labor income. Their excess wealth at age 50 is mainly explained by higher saving rates (46%), followed by higher returns (34%) and higher labor income (16%).

Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation, with Joachim Hubmer, Serdar Ozkan and Sergio Salgado (draft March2023)

Annual wealth tax is back on the policy agenda, but discussion of its effect is not well informed. When standard methodology is used and wealth‐tax burdens are measured against annual individual income, it is found that a large share of the tax burden falls on people with low incomes. In this study, we use rich Norwegian administrative data to discuss the distributional effects of wealth tax under several different income concepts, ultimately measuring income over the lifetime of family dynasties. When measured against lifetime income and lifetime income in dynasties, wealth tax is mostly borne by high‐income taxpayers and is seen as clearly redistributive.

Distributional Effects of a Wealth Tax under Lifetime-Dynastic Income Concepts, with Thor O. Thoresen, Scandinavian Journal of Economics 123(1), 184-215, 2021.

Industrialist Andrew Carnegie claimed that parents who bequeath vast fortunes to their children deaden the “talents and energies” of their offspring. But do inheritances really have such effects, and can those effects be quantified? 

Carnegie effect estimates are few, reflecting that such effects are hard to trace. Most previous studies rely on data from limited-size surveys. We use information from administrative data covering the entire Norwegian population, enabling an examination of the heterogeneity of the Carnegie effect. Estimation results show significant reductions in labor supply for recipients of large inheritances. We find that Carnegie effects differ according to transfer size, the recipient’s age and eligibility for other transfer programs, and the existence of new heirs in the family chain.

Heterogeneity of the Carnegie Effect, with Erlend E. Bø and Thor O. Thoresen, Journal of Human Resources, 54(3), 726-759, 2019.

• Non-technical summary: Investigating the ‘Carnegie effect', Significance, June/2020

• On Tiktok/Twitter here

• Press: Dagsavisen (in Norwegian)