Inheritances and Wealth Inequality: a Machine Learning Approach

Pedro Salas-Rojo () and Juan Rodríguez
Authors registered in the RePEc Author Service: PEDRO SALAS ROJO, Jr.

No 32, LWS Working papers from LIS Cross-National Data Center in Luxembourg

Abstract: This paper explores how the inheritances received influence the distribution of wealth (financial, non-financial and total) in four developed −but substantially different− countries: the United States, Canada, Italy and Spain. Following the inequality of opportunity literature, we first group individuals into types based on the inheritances received. Then, we estimate the between-types wealth inequality to approximate the part of overall wealth inequality explained by inheritances. After showing that traditional approaches lead to non-robust and arbitrary results, we apply Machine Learning methods to overcome this limitation. Among the available computing methods, we observe that the random forests is the most precise algorithm. By using this technique, we find that inheritances explain more than 65% of wealth inequality (Gini coefficient) in the US and Spain, and more than 40% in Italy and Canada. Finally, for the US and Italy, given the availability of parental education, we also include this circumstance in the analysis and study its interaction with inheritances. It is observed that the effect of inheritances is more prominent at the middle of the wealth distribution, while parental education is more important for the asset-poor.

Keywords: Wealth inequality; inheritances; Machine Learning; inequality of opportunity; parental education (search for similar items in EconPapers)
JEL-codes: C60 D31 D63 G51 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2020-12
New Economics Papers: this item is included in nep-big, nep-cmp and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Economic Inequality 20, (2022): 27–51. https://doi.org/10.1007/s10888-022-09528-8

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Related works:
Journal Article: Inheritances and wealth inequality: a machine learning approach (2022)
Working Paper: Inheritances and wealth inequality: a machine learning approach (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:lis:lwswps:32

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