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Democracy, War, and Wealth: Lessons from Two Centuries of Inheritance Taxation

Published online by Cambridge University Press:  10 February 2012

KENNETH SCHEVE*
Affiliation:
Yale University
DAVID STASAVAGE*
Affiliation:
New York University
*
Kenneth Scheve is Professor of Political Science, Yale University, Rosenkranz Hall, 115 Prospect Street, New Haven, CT 06520 (kenneth.scheve@yale.edu).
David Stasavage is Professor of Politics, New York University, 19 W. 4th Street, New York, NY 10012 (david.stasavage@nyu.edu).

Abstract

In this article 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 and (2) political conditions created by mass mobilization for war. Using a 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 political conditions under which countries are likely to implement policies that significantly redistribute wealth and income.

Type
Research Article
Copyright
Copyright © American Political Science Association 2012

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