The effect of parental wealth on labor income: Evidence from the Norwegian wealth tax

Does parental wealth affect labor income and inequality in the next generation? We address this question using intergenerational data and institutional variation from the Norwegian wealth tax. Our findings indicate that a 10 percent increase in parental wealth raises annual labor income of children by 0.15 percent. The causal effect of parental wealth accounts for 18 percent of the rank-rank correlation between parental wealth and labor income. While education remains a key determinant of earnings, higher parental wealth is also associated with greater labor market risk-taking. These results suggest that taxing parental wealth potentially alters the distribution of labor income across generations.