Research Article

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

KENNETH SCHEVE^a1 c1 and DAVID STASAVAGE^a2 c2

^a1 Yale University

^a2 New York University

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.

Correspondence:

^c1 Kenneth Scheve is Professor of Political Science, Yale University, Rosenkranz Hall, 115 Prospect Street, New Haven, CT 06520 (kenneth.scheve@yale.edu).

^c2 David Stasavage is Professor of Politics, New York University, 19 W. 4th Street, New York, NY 10012 (david.stasavage@nyu.edu).

Footnotes

We thank Lily Batchelder, Jess Benhabib, Tim Besley, Deborah Boucoyannis, Alex Debs, Thad Dunning, Steve Haber, Mitchell Kane, Arnd Plagge, Jim Robinson, John Roemer, Daniel Waldenström, Ebonya Washington, the co-editors, three anonymous referees, and seminar participants at the London School of Economics and Political Science, Duke University, the University of Virginia, Fudan University, Cornell University, Harvard University, Princeton University, Stanford University, University College London, and the Stanford University/University of the West Indies Political Economy Research Conference for comments on a previous draft. We also thank Sebastian Barfort, Navid Hassanpour, Marko Karttunen, Kong Joo Shin, and Kris-Stella Trump for excellent research assistance, with special thanks to Arnd Plagge who coordinated our collection of the top inheritance tax data. We are grateful for financial support from the Russell Sage Foundation, RSF Project #83-08-10, the MacMillan Center for International and Area Studies, and the Institution for Social and Policy Studies. The replication data set for this article is available at Yale University's Institution for Social and Policy Studies data archive http://isps.research.yale.edu/research-2/data/. We have also produced a Comparative Inheritance Taxation Database available at http://isps.research.yale.edu/research-2/data/. This database includes additional descriptions of the key features of each country's inheritance taxation laws as well as electronic copies of all relevant national legislation used to create the data employed in our study.