Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2015:21: Poor Little Rich Kids? The Determinants of the Intergenerational Transmission of Wealth

Sandra E. Black (), Paul J. Devereux (), Petter Lundborg () and Kaveh Majlesi ()
Additional contact information
Sandra E. Black: Department of Economics, University of Texas, Austin
Paul J. Devereux: School of Economics and Geary Institute, University College Dublin
Petter Lundborg: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Kaveh Majlesi: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: Wealth is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use administrative data on the net wealth of a large sample of Swedish adoptees merged with similar information for their biological and adoptive parents. Comparing the relationship between the wealth of adopted and biological parents and that of the adopted child, we find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for pre-birth factors. We also examine the role played by bequests and find that, when they are taken into account, the role of adoptive parental wealth becomes much stronger. We find very little evidence that education or earnings of parents or children are important drivers of the intergenerational wealth relationship between children and their adoptive parents. Our findings suggest that wealth transmission is not primarily because children from wealthier families are inherently more talented or more able but that, even in relatively egalitarian Sweden, wealth begets wealth.

Keywords: intergenerational mobility; nature versus nurture; portfolio allocation

JEL-codes: G11; J01; J13; J62

41 pages, August 3, 2015

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