The Long-Term Implications of Destruction During the Second World War on Private Wealth in Germany

Abstract

By the end of the Second World War, an estimated 20 percent of the West German housing stock had been destroyed. Building on a theoretical lifecycle model of wealth accumulation, this paper examines the extent to which regional differences in destruction can explain differences in wealth today” – at the beginning of the 21st century. As our empirical basis, we link a unique historical dataset on the levels of wartime destruction in 1.739 West German cities with micro data on household wealth provided by the Socio-Economic Panel. Among individuals born in cities or villages that were badly damaged in the Second World War, wealth is still about 10 percent lower today. Similarly, the destruction of parents’ birthplaces have significant negative implications for the wealth of their descendants. These negative implications are robust after controlling for a rich set of pre-war regional and city-level control variables. In complementary empirical exercises, we study potential channels such as inheritances, health, and education, through which the wartime destruction could have affected wealth accumulation.