Sun. Dec 8th, 2019

Spain is the second OECD country with the highest legacies | Economy

Spain is the second OECD country with the highest legacies | Economy


Citizens proposed last week in Congress the elimination of inheritance tax because, as he says, it is a tribute to the middle classes. Although the initiative had the support of the PP, it was rejected. In the middle of this debate, an OECD study published this year concludes that inheritances contribute to economic inequality and reduce social mobility. Moreover, with 2015 data collected from 18 countries, Spain is the second country where inheritances and donations are higher, only surpassed by Austria and followed closely by Italy. The average amount exceeds 105,000 euros. According to experts, these figures are largely explained by the significant investment made by Spanish households in housing.

Spain is the second OECD country with the highest legacies

According to this study, in Spain approximately one third of the families have received an inheritance or donation, a percentage in the OECD average, the body that groups the developed countries. This fact already raises the inequality between those who inherit and those who do not.

However, the OECD report tries to go a step further. Made public this year and framed in their studies on wealth inequality, the authors intend to examine the effect of inheritances and donations on wealth inequality and, in general, on social mobility. "Do inheritances and donations predominantly receive those that have greater economic advantages," they ask. And the conclusion is yes: "In all countries, households with higher incomes are more likely to have received an inheritance or donation, although the extent to which this happens varies considerably between countries."

Spain is the second OECD country with the highest legacies

In fact, in some southern European countries, including Spain, "the relationship between income and the probability of receiving an inheritance is much weaker". While in Spain the 20% with the highest income has a probability of inheriting 36%, in the quintile with less income the probability of obtaining an inheritance or donation is 34%. That is to say, the gap just in this indicator seems rather scarce. It seems that the widespread bet for home ownership may have played a very important role. Studies such as those of the Bank of Spain have always indicated that households with lower incomes have also bought homes, and this particularity has served to make Spaniards appear much better in any ranking of wealth.

Although there is also an additional explanation: "The more income they have, the more households devote to tax planning. It could happen that those with higher incomes are more capable of transmitting their wealth by avoiding the inheritance, "says Jorge Onrubia, professor of Public Finance at the Complutense University and associate researcher at Fedea.

Spain is the second OECD country with the highest legacies

Even so, "even in countries where the relationship between income and the probability of receiving inheritance is weakest, the value of that inheritance is considerably higher for high-income households." And it points out in particular the case of Spain, where the average inheritance of households in the top 20% of income reaches 179,200 dollars (158,000 euros) compared to 47,700 dollars (42,000 euros) that pockets the quintile with less income. This is about four times more, a proportion that is in the OECD average. "It indicates a strong link between current income and the amount they can inherit (and, consequently, the wealth of their parents and other family members), implying low levels of intergenerational mobility," concludes the study in reference to the southern countries, Including Spain.

The more the richer

The inequality caused by inheritances and donations is much more evident if the data is analyzed in terms of the wealth accumulated by families instead of only by income. Or what is the same: to the question of whether being richer is more likely to have inherited and is more inherited, the answer, although logical, is yes. "The relationship is much stronger than with income," the report adds.

In the 20% with the most heritage there are four times more likely to have inherited an inheritance than in the poorest group, say the OECD researchers.

In Spain, this last data is similar. Now, among the Spaniards, the greatest inequality lies above all in the inherited quantities. The gap between what rich and poor enter is one of the largest observed in the study: while the top quintile inherits an average of 350,000 euros, 20% with less wealth just receives about 10,000 euros. From this perspective, inequality in Spain acquires much higher levels.

In light of these figures, many experts see the inheritance tax as necessary. "It is not presentable that the State has forgotten the legal design of inheritance tax in Spain since the eighties. It seems absurd this tax competition between communities and there are places where the tax can become confiscatory and others where it is almost completely subsidized, "explains Onrubia.

Having developed strong fiscal competition between regions, Canada is one of the few countries that has abolished this figure. It was done because it was in the hands of the provinces, remembers Onrubia. On the contrary, in the United States the debate is now about whether inheritances are rather a burden for meritocracy.

The heirs are getting older

The work of the OECD highlights that inheritances and donations have increased considerably during the most recent decades, as the older generations accumulate much more wealth that can then leave to younger cohorts.

He also emphasizes that many of those who will pocket an inheritance will not do so "until relatively late in life", due to the increasing life expectancy. According to a projection made in the United Kingdom and that includes the study, those Britons who are between 20 and 35 years old will not inherit until 61, very close to their retirement. According to the calculations of the organism, the most frequent age to receive an inheritance is already in the range between 55 and 65 years. Logically, the greater the head of the family, the greater the probability of having obtained an inheritance.

The differences in inequality depend, in part, on the extent to which the heir uses the transmitted heritage to save rather than use it to finance consumption, the paper says. And he adds that this in turn is very conditioned by the income of the heir, the age when it is received, education or family formation. Or what is the same: the inheritances can also be dilapidated.

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