The inheritance of wealth as a productive incentive

ALEJANDRO BERROTARÁN

Louvain La Neuve

Seminario; E-Vives Seminar; 2021

Hoover Chaire - Université catholique de Louvain

What justifies the inequalities resulting from the inheritance of wealth? According to John Rawls' difference principle, economic inequalities generated by hereditary transfers are allowed only if they benefit those who have less. Thus, the power to bequeath would operate as an incentive for people to work more, and to the extent that this benefits the most disadvantaged, this institution would be justified. However, there are several concerns regarding the role of the inheritance as a productive incentive. On the one hand, it has been pointed out that there are other productive incentives that are more important to explain wealth accumulation than bequeathing. Some even argue that the elimination of this institution would not affect the productivity of the transmitter. On the other hand, several studies establish that receiving or expecting to receive an inheritance can act as a labor disincentive for the heirs and, therefore, this institution would reduce productivity. In this sense, the institutional design of hereditary transmission must be able to balance the incentives it generates with the disincentive effect that its reception causes.