New findings on the impact of a basic inheritance in four European countries
- From Sonja Hennen
- Reading duration 2 min
Those in favour of a basic inheritance see it as a means of redistributing wealth and reducing inequality of opportunity and propose higher wealth, inheritance and/or estate taxes to finance it. The ReBalance Wealth Simulator also proves that a basic inheritance is an effective means of reducing wealth inequality.
Despite different proposals on the design, amount and financing methods, there is little supranational evidence on the costs and distributional effects of such an instrument. In a study commissioned by the EU Commission, the impact of a basic inheritance as a strategy to combat growing inequality has now been compared in several countries for the first time. The study is the first comparative evaluation based on harmonised data sources and covers Finland, Germany, Ireland and Italy. The data basis is the ECB's Household Finance and Consumption Survey (HFCS) adjusted to the upper bound. The top tail of HFCS-based wealth distribution is replaced by a Pareto-tail according to the estimated parameters. This enables the authors to provide a more accurate representation of the upper part of the wealth distribution - and thus also a better quantification of the overall level of wealth inequality.
The authors conclude that, under certain parameters, a basic inheritance would significantly reduce inequality in the countries analysed and could realistically be financed by taxing the top 1%.
The higher the tax-free amount, the heavier the burden would be on citizens at the top of the wealth distribution. The majority of the tax burden would then be borne almost entirely by the richest 10 %. The simulations also show that social benefits of up to EUR 20,000 or EUR 30,000 per year could be realised with tax rates below 15% and 20% respectively. Beyond these thresholds, higher benefits require tax rates that are likely to be politically difficult to sustain due to the heavier burden on wealthier citizens. For every €10,000 increase in the basic income, the Gini coefficient in the simulation falls by an average of 0.63 percentage points.
Similar to other simulations, behavioural effects in connection with the introduction of a basic inheritance are not taken into account.