Russel Sage Foundation

In this paper we use an original data set to provide the first empirical analysis of the political economy of inherited wealth taxation that covers a significant number of countries and a long time frame (1816-2000). Our goal is to understand why, if inheritance taxes are often very old taxes, the implementation of inheritance tax rates significant enough to affect wealth inequality is a much more recent phenomenon. We hypothesize alternatively that significant taxation of inherited wealth depended on (1) the extension of the suffrage to the lower classes, and (2) political conditions created by mass mobilization for war. Using a generalized difference-in-differences framework for identification, we find little evidence for the suffrage hypothesis but very strong evidence for the mass mobilization hypothesis. Our study has implications for understanding the evolution of wealth inequality and the potential effect of democracy on redistribution. Our findings also inform scholarship on the current political context for estate and inheritance taxation. Understanding why majorities today may favor the repeal of such taxes requires understanding why past majorities favored implementing them in the first place.