The role of inheritance in
Sweden, 1810-2010
Presentation at the workshop “Inequality, Crisis and
Taxation”, March 7, 2012, Paris
Jesper Roine, SITE, Stockholm School of Economics
(joint work with Henry Ohlsson and Daniel Waldenström, Uppsala
University)
What we try to do and why?
•
Estimate the annual inheritance flow in relation to national
income in Sweden for the period 1810-2010.
•
Role of inheritance, of course, interesting in general for a
number of reasons (Piketty, 2011)…
•
…but, in particular in this context, interesting to compare
Sweden to France and UK. Somewhat different history in terms
of household wealth, timing of industrialization and, in particular,
the role of the welfare state.
Why might Sweden be
different?
• Sweden a late industrialiser that rapidly grows from poor to rich
in the period 1870-1970
• Long tradition of “self-ownership” among small farmers, but also
nobility with hereditary privileges (some which remain today).
• Growth and development of the welfare state over the 20th
Century. Incentives not to accumulate household wealth (but
potentially also to hide wealth or avoid owning wealth
“personally”).
Ways of estimating the
inheritance flow
Following Piketty (2011), we can estimate the inheritance flow in two ways:
1.National income and wealth accounts and the basic accounting equation:
B/Y = μ ∙ m ∙ W/Y
B = annual inheritance flow
Y = national income
W = aggregate private wealth
m = annual mortality rate = (tot number of decendents/tot living population)
μ = ratio between average wealth of the deceased and average wealth of the living
b = W/Y= aggregate wealth income ratio
2.Directly by observing inheritance flows in estate data
3.In the Swedish case a third related method is available based on wealth tax
data (“second best” consistency check due to lack of data for 2)
Available data for Sweden
1810-2010
1. National income and wealth accounts: B/Y = μ ∙ m ∙ W/Y
Y: National Income?
Good data on GDP and capital depreciation but not on net foreign flows
Current series: Estimating NI based on available data
W: Aggregate private wealth?
Prior to this project, wealth totals from various sources
Current series: New data from Waldenström (2012)
m: Annual mortality rate, i.e. tot number of decendents/tot living population?
Current series: Readily available data since 1700s (Statistics Sweden)
μ : ratio between average wealth of the deceased and average wealth of the living?
Current series: Obvious for the living (adult pop), average wealth of
deceased most problematic: Available for a few years based nation wide
observations of estates (“full sample”) in various public investigations and
for various regions in the 1800s
βt = Wt/Yt aggregate wealth income ratio from the above
Available data for Sweden
1810-2010 (cont.)
2. Directly by observing inheritance flows in estate data
Annual, aggregate data only available for tax revenue. No use due to
progressive taxes
“Total coverage” of estates available in
1873-1877, public investigation, market values, about 50 % of deaths
1906-1908, public investigation, market values, about 50 % of deaths
1943-44, public investigation, tax values, about 20 % of deaths
1954/55, public investigation, tax values, about 30 % of deaths
1967, public investigation, tax values, 100 % of deaths
2002-2003, public investigation, tax values, 100% of deaths
All claim to be capturing “all relevant estates”; tax values most likely large
source of underestimation.
Available data for Sweden
1810-2010 (cont.)
3. Comparatively rich data on wealth due to wealth tax (since 1912)
Using wealth-age distribution of household wealth (of the living) and
multiplying each age group with appropriate mortality rate we get a
proxy for “predicted inheritance”
Wealth distribution based on tax values means underestimating total
wealth.
Current solution: Use new series on aggregate household wealth
(Waldenström, 2012) and assume this is distributed over age like the
tax valued wealth gives predicted inheritance
Available data for Sweden
1810-2010 (cont.)
Example of “inverse mortality multiplier”
Three (interrelated) ways of
estimating Swedish inheritance flows
1) Using national income and wealth accounts (1810-2010)
μ is most problematic as we must use estate data to get
average wealth of the deceased (and hence only available for a
few years).
2) Direct observation of estate data (a few scattered years 1873-2003)
3) Inverse mortality multiplier method to get predicted inheritance (19202007)
also relies on wealth totals as wealth tax data does not cover “all
wealth”. Also on distributional assumptions.
Corrections:
Approx. correction for non-filers and tax exempt assets (applicable
only for observed inheritance): Relatively ad-hoc, based on ratio
observed estates and actual deaths and info on wealth distribution
(+15-25%)
Gift corrections: Raw gift correction based on ratio of gift tax receipts
and estate tax receipts (+4-31%)
Results: Ratio wealth to income
With the new wealth series we can calculate the wealth income ratio
βt = Wt/Yt for the whole period 1810-2010
Results: Predicted steady state
inheritance flow
What is the predicted steady state flow b= βt/H for the period?
Assuming generation length H=28 years
16,00%
14,00%
12,00%
10,00%
8,00%
6,00%
Steady state inheritance flow,
b= βt/H
Assuming H=28
4,00%
0,00%
1810
1816
1822
1828
1834
1840
1846
1852
1858
1864
1870
1876
1882
1888
1894
1900
1906
1912
1918
1924
1930
1936
1942
1948
1954
1960
1966
1972
1978
1984
1990
1996
2002
2008
2,00%
Results: What do we observe in
our data? Period 1870-2010
Estate observations probably have good coverage but
are based on tax values in all surveys after 1908
Results: What do we observe in our
data and if we guess? Period 18102010
High values in the early 1800s entirely driven by high μ
values (300-350%). This is guess work based on averages of
average estate values in individual cities and villages at
different points in time during 1800-1900. These fluctuate a
lot!
Inheritance flows in Sweden
compared to France
Our data on the relationship between average wealth of
deceased and living is very preliminary. Could change the
picture (but unlikely that flows will be as high as in France in
the 19th C)
Main challenges with current data
Estates for the years when we have them have good coverage and
should in principle cover the total inheritance flow. Corrections for tax
exempt assets and small estates and for gift corrections have been
made. These can be discussed but the main thing is the tax based
valuation of assets.
Better (micro) data on wealth-age distribution exists 1968- (though still
based on tax values. Still possible to get better “inverse mortality
multiplier” estimates.
Much more needs to be done on estimating μ, especially for the 19th C.
Main options to get better data
In principle estate data exists in archives (legally required for all since
1736) but they are spread out and would require major effort to get
enough observations
For more recent years an ongoing project is collecting estates for “the
LINDA sample individuals” that die. (LINDA is representative panel of
about 3 percent of population).
Numerical simulations also to be done.
Remaining issues that need to be
dealt with
How to think about negative wealth and public pension claims etc.
Potentially underestimated “foreign assets” and closely held companies
(especially forest land).
Ownership through tax exempt institutions etc. Also “fideikommiss” still
relatively large in Sweden (but again with clear restrictions on how to use
assets).
…and probably many other things
Summary of the preliminary
results
The inheritance share of national income was around 10 % in the early
years of industrialization in Sweden (1870s) It then increased to about 15
% around 1910 and then began to decline to about 5 % in the early
1980s and has since probably increased again to levels around 10%.
The recent increase is consistent with private wealth increasing sharply
since 1980 in relation to income
Even though a large part of the population accumulates very little wealth
(about 25% have negative wealth) the aggregate role of inheritance is
about the same as in France and increasing.