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Pride and Prejudice opens with the proclamation that it is well known that a man with a fortune is in want of a wife (Austen 1991, p. 1). This satirical remark conveys a theme that is illuminated elsewhere in the text: In nineteenthcentury Britain, having an inheritance made a man an attractive marriage prospect. While the advantages that inheritances convey to the individuals who receive them may vary across time and across societies, benefits exist. The nature of these benefits and the motives of the givers are two issues that have been discussed extensively in the social sciences literature.
An inheritance can be described as funds or assets that an individual receives from another person at the latter’s time of death. Accordingly, they are monies that individuals come to possess not through their effort in the marketplace, but through their relationships to other people, typically older family members and most often parents.
Controversies and Critical Issues
One hotly contested debate about inheritances concerns the extent to which differences in the propensity to inherit and in the amounts inherited contribute to the observed differences in the amount of wealth that different individuals have. This is an important question because it has bearing on the validity of a popular economic theory of saving. Economists’ life-cycle hypothesis attributes an individual’s wealth at any point in time to the process of saving, arguing that individuals compile savings by spending less than they consume early in life so that they will have funds to turn to during retirement. According to this theory, it is an individual’s earnings, age, and other demographic variables that determine the amount of wealth that the individual has. The receipt of an inheritance provides another potential source of wealth, however, and empirical research suggests that its effects may be significant. During the 1980s Franco Modigliani (1988) and Laurence Kotlikoff and Lawrence Summers (1981) offered estimates of the magnitude of funds that U.S. adult children received from their parents. Modigliani put the sum at about 20 percent of the total wealth that individuals possess, while Kotlikoff and Summers argued that the amount was much higher (almost 80 percent). These data are illustrative because of the historical significance of the debate between these three authors. The debate laid the foundation for additional research on inheritances. Moreover, studies that have been conducted since this time routinely provide estimates of the magnitude of wealth transfers across the generations that lie within the range laid down in the Modigliani and KotlikoffSummers debate.
A second debate focuses on the motivations of those who give money to others. With this shift in focus comes a change in language. The term bequest is generally used to describe funds that one leaves to others when one dies, while the term inheritance is reserved for characterizing the funds after they have been received. The debate about bequests asks why people leave them. From a theoretical standpoint bequests can be either planned or accidental. Individuals may make deliberate decisions to leave money to their offspring, or bequests may be given simply because individuals who have accumulated substantial wealth that they plan to spend during retirement die before they finish consuming this wealth, thereby unintentionally leaving something for their offspring to inherit.
When a bequest is planned, theory suggests that there are numerous reasons that parents may choose to leave a bequest (Masson and Pestieau 1997). Some scholars argue that they might be used as a device for disciplining children—that parents can use the promise of a bequest and the associated threat of disinheriting their offspring as ways to force members of the younger generation to devote attention to their elders. Other scholars argue that bequests are given for purely altruistic reasons, stating that wealthy parents who have led comfortable lifestyles may leave bequests simply to ensure that their children also can have comfortable lifestyles or to guarantee that the children are protected against misfortune. Because it is hard to test the theories about motives directly, it is not possible to know exactly how many families use bequests as a disciplining device or how many intentionally leave bequests.
A final controversy surrounds the effects that inheritances have on individuals and on society. Because individuals who are wealthy have advantages that individuals who are poor do not, many social scientists argue that inheritances and other intergenerational transfers may have a negative effect of perpetuating inequalities in society. Proponents of this view note that the ability to leave one’s wealth to one’s children allows children from wealthy, comfortable backgrounds to be ensured of being fairly wealthy and comfortable themselves, while children in families where parents are too poor to have a pool of savings to leave at their time of death have no choice but to finance all their needs through their own earnings. Sociologists Melvin L. Oliver and Thomas M. Shapiro have been influential in laying out these arguments and in providing qualitative evidence from interviews with individuals who received inheritances that helps researchers understand the processes through which inheritances can perpetuate inequality (Oliver and Shapiro 1995; Shapiro 2004). Studies based on large national data sets containing information from families throughout the United States provide corroborating evidence suggesting that inheritances contribute to racial inequality (Menchik and Jianakoplos 1997).
A discussion of inheritance would be remiss without some mention of policy. One question many societies face is whether to tax inheritances. Naysayers often argue that taxing inheritances is inappropriate because it hampers families’ ability to transfer family businesses from one generation to the next. Others argue that given the privilege that inherited wealth conveys, limiting the amount of funds that can be transferred is consistent with ideals of equal opportunity and making it on one’s own. The theoretical debate about bequest motives also has implications for policy. If most bequests are accidental, taxing inheritances should not substantially alter saving behavior. However, if people are motivated to accumulate wealth for the expressed purpose of being able to leave it to their offspring at death, tax policies that reduce the amount that can be transferred after death might reduce saving. How inheritances affect the incentive to work is another important policy issue. The receipt of an inheritance can reduce individuals’ willingness to work (Holtz-Eakin, Joulfaian, and Rosen 1993). This may provide a justification for policies designed to limit inheritances, much in the same way that there was popular support to reform welfare in the United States due to concerns about its effect on work incentives during the 1990s.
- Austen, Jane. 1991. Pride and Prejudice. New York: Knopf.
- Holtz-Eakin, Douglas, David Joulfaian, and Harvey Rosen. The Carnegie Conjecture: Some Empirical Evidence. Quarterly Journal of Economics 108, no. 2: 413–435.
- Kotlikoff, Laurence, and Lawrence Summers. 1981. The Role of Intergenerational Transfers in Aggregate Capital Accumulation. Journal of Political Economy 89, no. 4: 706–732.
- Masson, André, and Pierre Pestieau. 1997. Bequest Motives and Models of Inheritance: A Survey of the Literature. In Is Inheritance Legitimate? Ethical and Economic Aspects of Wealth Transfers, ed. Guido Erreygers and Toon Vandevelde. New York: Springer.
- Menchik, Paul, and Nancy Jianakoplos. 1997. Black-White Wealth Inequality: Is Inheritance the Reason? Economic Inquiry 35, no. 2: 428–442.
- Modigliani, Franco. 1988. Measuring the Contribution of Intergenerational Transfers to Total Wealth: Conceptual Issues and Empirical Findings. In Modelling the Accumulation and Distribution of Wealth, ed. Denis Kessler and André Masson. Oxford: Clarendon.
- Oliver, Melvin L., and Thomas M. Shapiro. 1995. Black Wealth/White Wealth: A New Perspective on Racial Inequality. New York: Routledge.
- Shapiro, Thomas M. 2004. The Hidden Cost of Being African American: How Wealth Perpetuates Inequality. New York: Oxford University Press.
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