2
$\begingroup$

I've been reading about income/wealth inequality and the ways different countries (US/EU) are trying to solve this.

I've also learned about two rivaling points of view that can be expressed as follows:

  1. Rich people like Elon Musk moves the humanity forward and the more money they have, the bigger impact they can make
  2. Wealth makes it much easier to get richer.

It looks like EU govs doubles down on increasing taxes for the rich. So it's kinda explored and well studied technique to fight inequality. And this approach certainly goes against the ones who says "Elon Musk moves the humanity forward, give him more money".

It appears to me, that all parties agree that generational wealth is more harmful than self-made wealth.

My question is: How much does generational wealth contributes to wealth inequality? I wonder if there were any attempts to make it much harder to inherit wealth instead of just pushing the progressive tax up on rich people. If not, then why?

I'm a total newbie in economics, sry if this question is too naive :)

$\endgroup$
3
  • 1
    $\begingroup$ Progressive taxes are mainly done to combat income inequality not wealth inequality. Most of EU and world in general has no wealth taxes $\endgroup$
    – 1muflon1
    Commented Aug 20, 2022 at 9:50
  • 1
    $\begingroup$ Is this because "wealth taxes" would force wealthy people to move their assets to other jurisdictions? $\endgroup$
    – stkvtflw
    Commented Aug 20, 2022 at 9:53
  • 1
    $\begingroup$ it’s because wealth taxes are implicit taxes on capital return and government can’t decide who will bear burden of taxes (they can only say who transfers not who gets worse of - eg many businesses can pass large amount of sales tax on consumers), for capital taxes it can be shown that between 50-100% of their burden is shifted to workers via lower wages, so if you actually want to maximize welfare of the poor they are not very good instrument. Also they are expensive to implement as they require government to measure value of all assets in economy every year which is difficult for most assets $\endgroup$
    – 1muflon1
    Commented Aug 20, 2022 at 11:04

1 Answer 1

3
$\begingroup$

Not much.

A groundbreaking 20-year study conducted by wealth consultancy, The Williams Group, involved over 3,200 families and found that seven in 10 families tend to lose their fortune by the second generation, while nine in 10 lose it by the third generation.

Source: Singapore Management University

Out of the Top 10 richest people in the world none was born into a wealthy family by any standard.

Inheritance tax is a special form of wealth taxation and most major countries do in fact have fairly high inheritance tax rates.

$\endgroup$
3
  • $\begingroup$ This is answering a different question. If the second generation "loses its fortune", that means it had a fortune to begin with and was therefore very inequal. $\endgroup$ Commented Aug 22, 2022 at 15:06
  • 1
    $\begingroup$ Without inheriting money, wealth can only come from someone's own business /work. If on average, wealth is lost by the second and third generations after the person who got wealthy, I would say it implies that equality comes primarily from the first generation. It certainly means it is not much easier to get richer if people tend to destroy the fortune instead of multiplying it. $\endgroup$
    – Alex
    Commented Aug 22, 2022 at 15:41
  • $\begingroup$ If the second generation's inequality comes from the first generation's business, is that not generational wealth? $\endgroup$ Commented Aug 22, 2022 at 15:52

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.