Wealth: Why sole heirs weaken the economy

Harvard Business manager: Ms. Bartels, you have studied historical inheritance rules in Germany and discovered that how well regions are doing economically today depends on who inherited their parents' farm 150 years ago. Why are you interested in this question?

Charlotte Bartels: The question of how inequality affects the economy and society in the long term has long been on my mind. For decades, the paradigm in economics was that economic growth had nothing to do with equal or unequal distribution. It was only in the 2000s that economists Anthony Atkinson and Thomas Piketty brought the issue onto the agenda, and the discourse on it has slowly changed.

And you wanted to use your study to investigate whether the distribution of wealth does have an impact?

Exactly. What people owned actually played an important role in entrepreneurship in a region during the period of industrialization. And that, in turn, is the decisive driver of economic growth. For our study, we took advantage of the fact that two fundamentally different inheritance laws had existed in Germany since the Middle Ages, which differed regionally, sometimes even from village to village. Almost a quasi-experiment from which one can derive wonderful insights.

What did these regulations provide for?

In the southwest of what is now the Federal Republic, the so-called real division was dominant, whereby the land of a deceased person was divided among all children. In the north and southeast, however, the law of primogeniture prevailed, according to which the first-born son received the entire farm and the siblings got nothing. Using historical data, we have drawn a map of the German Empire that shows the distribution of inheritance customs and regulations at the end of the 19th century. It shows how the rules varied across political, linguistic, geological and religious borders.

And you compared this information with data on economic development?

Exactly. To measure prosperity and economic activity, we used employment figures, tax data and the number of patent applications, among other things - first with historical and then with current figures from censuses, national accounts and other data from the Federal Statistical Office, its predecessor agencies and other sources. Using statistical methods, we were then able to determine an effect of the inheritance rules of the time on today's prosperity.

They show that in areas where inheritance was once passed on equally among all children, there are now more companies located and higher incomes are generated than in areas with historical inheritance rights. How do you explain this connection?

Where the inheritance was divided among all children, more people owned land, but the shared land did not make them rich. In other words, people were provided for, but they were also motivated to find additional sources of income. Many therefore developed by-products on their farms, such as soaps, fabrics - even clocks and other mechanical and optical devices. With the increasing demand during the Industrial Revolution, some of the small factories became successful companies, for example in the chemical and automotive supply industries. It's actually crazy: where people had the smallest farms, in Swabia, for example, there is great wealth today.

How can you be sure that economic advancement is actually linked to the distribution at that time? Aren't there other factors at play here?

We asked ourselves that too. Soil quality could play a role, as could people's education, and last but not least, economic development programs have had and continue to have a major impact on regional prosperity since the 20th century. We collected a lot of additional data to control influencing variables such as these. We found that they do not correlate with the respective economic development. We found statistically significant economic differences between the places with and without real division. Let's take real economic power: the difference in gross domestic product per capita is 15 percent.

The industrial revolution occurred in the 19th century. However, according to your study, it was only in the interwar period that major differences in tax revenues emerged.

This is because industrialization in Germany, unlike in England, for example, only took off relatively late - especially in the chemical, electronics and automotive supply industries. It was only in the 1950s that more people in this country were employed in industry than in agriculture.

Your study also shows that in regions with historical real division, there are now more women represented on city councils than in other regions. How does this happen?

It wasn't us who discovered this, but two political scientists . They looked at data for city councils and Rotary clubs and found that there are more women represented in areas where there used to be real division. This is because women inherited in these areas. They had access to financial resources for longer and therefore more power. For our studies, we also looked at the current gender pay gaps, but found no difference between the different areas.

Do your results suggest that the economy would benefit if wealth were distributed more evenly today?

Our study certainly adds an important aspect to the discussion about a more equal distribution of wealth. Today, only around 10 percent of Germans own their own business or own a home that they rent out. This does not result in a particularly large pool of potential entrepreneurs.

Some are calling for higher inheritance or wealth taxes, including the “Taxmenow” initiative formed by the super-rich. Do you agree with them?

It is generally a good idea to think about how redistribution could create more incentives for start-ups. There are also ideas such as " Inheritance for all ", according to which every young person should receive a kind of start-up capital. But it is important to me to say: We do not see our work as the basis for certain political demands. Our study primarily shows what effects the distribution of economic resources can have in the short and long term. © HBm 2025