Do inheritances increase a country's richness gradually every generation?

Question

I thought of this question while cycling today. As older people die and leave their children their real estate and the rest of the inheritance, and as generation after generation passes, does a western country with low population growth gradually become richer due to this factor? Or is this factor insignificant?

Answer 1

Put simply - No. The driving force behind a countries growth is its ability to produce. Inheritance is simply one person spending what another person produced.
The key driver between rich and poor countries is not inheritance but capital. Capital are productive goods such as computers and machine tools (and also education and skills). The more of this a country owns the more it can produce. However it does not matter whether I own them or whether my children own them after I die. It is enough that they exist.
Low population growth actually makes it easier for a rich country to remain rich since if the population grows fast then the economy has to grow even faster to ensure that all the new people have at least as much money as their parents. This is one of the reasons why poor countries have tended to stay poor as they simply cannot keep up with their growing population.

Answer 2

In introductioon we must understand, that whether inheritance is real estate, or liquid capital - it can be spent, because items can be sold.

Assuming by a country's richness you mean GDP (gross domestic product - country's richness - production capability of an economy); no it doesn't make a difference. The reason is this money is simply transfered, from one individual to another, and the average remains the same.

But one could argue as this inheritance is transfered, it is taxed by the government, and part of it will go to them. That money will then potentially be spent on projects such as building office blocks, factories, regenerating areas - which could in turn increase the size of the economy by increasing 'capital goods' one of the four factors of production - the others being 'enterprise, land and labour'. One could also argue that an increase in capital goods will encourage business, and therefore increase enterprise.

Not only this - but the inheritor could spend it on starting a new business, or on producing a good - which will in turn increase the economy's richness.

And also one must understand, western countries do have comparitively low population growth - but the population is still growing ! It isn't shrinking. Therefore if we only lived on what previous generations passed to us - there would still be more people, and that will not increase GDP per capita (GDP per person).

So in conclusion - if the money recieved from inheritance is not spent on a factor of production - it will have no effect on the richess of an economy 'GDP'. But if it is: by the government or the inheritor - it will in turn increase the production capabilities of an economy and increase richness 'GDP. But this is all assuming that the diseased person wasn't purchasing capital goods prior to his/her passing as efficently as the present owner of the inheritance now is.

Thank You

Answer 3

It is not the bequest of real estate that makes later generations wealthier but the productive capital goods and knowledge. Most building deteriorate so over a generation they could be replaced for the upkeep cost and the land is always there. If you inherit productive resources and the knowledge to improve them faster than the population growth you become a wealthier country Low population growth rates have only become the norm in the decades since WWII.

Answer 4

Inheritance actually make the estate divided and has a declining effect.Since all the asset/cash is not invested although various channels are opened but impact due to quantity is less effective in gain.

Answer 5

The estate tax is a huge one though... something like 50%? In the USA at least, the way most people spend money it would get wasted on a car or something else that would be worth next to nothing in 10 years.

Answer 6

If it's not spent on frivolous things like illicit drugs or boob jobs. Rich kids hopefully will use it to make more money in the long run through things like venture capital.