The Impact of Inheritance on the Distribution of Wealth: Evidence from Great Britain

Using the British Household Panel Survey, we investigate the role of inheritance in shaping the distribution of household wealth in Great Britain during 1995-2005a period characterized by a substantial increase in wealth and an equally important decrease in wealth inequality. Abstracting from behavioral effects, we find that inheritances received during this period accounted for 30 percent of the increase in wealth of inheritors. Regression estimates of the effect of inheritance on wealth accumulation suggest that households spend 30 percent of their inheritances on average, and that there is substantial heterogeneity in household responses. Households that accumulated more wealth saved a larger share of their inheritances, as did middle aged households and those with lower initial wealth. Although inheritances are highly unequal they had a small impact on overall wealth inequality. This mainly reflected the fact that their size relative to other sources of wealth was very small.