Preprint Open Access

The long-term effects of inherited wealth on social equality

Allen, James T.

It is challenging to assess the long-term effects of policies related to the inheritance of wealth, due to the long timescales involved and the importance of family-level dynamics. However,agent-based models(ABMs)now provide a useful tool for simulating the effects of alternative policies, allowing a quantitative comparison to be made. In this paper we describe an ABM simulating the long-term(up to 150 years) development of the UK population in terms of births,deaths and the passage of wealth through the generations. The parameterisation of the model is driven by publicly available data on the demographics of the UK, primarily from the Office for National Statistics. We compare two situations: first where wealth is inherited directly by the children of the deceased; secondly where wealth is placed in descendants’ trusts for the benefit of the second and third generations that follow. The simulations show a marked reduction in the Gini coefficient for the case where wealth is placed in descendants’ trusts, relative to direct inheritance. This result implies that, overall, trusts of this sort act to reduce the level of wealth inequality across society. The same effect is seen whether examining the adult population as a whole or a single generation.

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