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From Riches to Riches: Intergenerational Transfers and the Evidence from Estate Tax Returns

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Objective.

Intergenerational transfers of wealth and ability can influence the distribution of wealth. This research examines the empirical relationships among intergenerational variables and cross-sectional wealth distribution. Methods.

Models pioneered by Gary Becker set out the conditions necessary for regression to the mean in wealth across generations. However, empirical testing of such models has been incomplete because large, reliable, intergenerational data sets—especially with data from three generations—are hard to find. This article unveils a remarkable new source of intergenerationally linked data: federal estate tax records filed in Wisconsin from 1916 to 1981 and linked across three generations of families. Results.

Wealth tends to regress to the mean at the top end of the distribution, but slowly. Consequently, wealth inequality in the United States is likely to persist. What is more, recent federal tax changes, particularly the repeal of the estate tax and the reduction in capital gains tax rates, will exacerbate cross-sectional wealth disparities. Conclusions.

In the long run, intergenerational forces may help overcome inequalities in wealth across U.S. families. Empirical results suggest, however, that regression to the mean will occur quite slowly, and the long run could be long indeed.
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Document Type: Research Article

Affiliations: Carleton College

Publication date: June 1, 2003

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