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

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 a¤ect wealth inequality is a much more recent phenomenon. We hypothesize alternatively that signifcant taxation of inherited wealth depended on (1) the extension of the su¤rage and (2) political conditions created by mass mobilization for war. Using a generalized difference-in-differences framework for identifcation, 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.