The ratio of wealth to income has increased substantially since WWII. Despite the key role of housing wealth in this process, an appropriate macroeconomic model that can explain recent history and assess the future is still lacking. This column presents a novel macroeconomic model designed to investigate the evolution of housing wealth in a growing economy with a fixed overall land supply. A key implication is that rising house and land prices are natural phenomena in a growing economy. Further, rising wealth-to-income ratios appear to be an important trigger for the long-term growth of the finance industry.
Volker Grossmann, Thomas Steger, 09 May 2016
Markus Poschke, Barış Kaymak, 17 April 2016
Recent decades have seen a remarkable increase in the concentration of wealth in the hands of the wealthiest in the US. This column examines which factors may have driven this increase. The evidence points to higher wage inequality, often attributed to new developments in the technology of production, as the main driving force, followed by tax cuts for top earners and more generous public transfers as secondary factors.
Jason Furman, 17 March 2016
The US is becoming ever more unequal. This column assesses the 2016 Economic Report of the President, highlighting that middle-class incomes are shaped by productivity growth, labour force participation, and the equality of outcomes. As the US economy moves beyond recovery from the Global Crisis, its policy stance should focus on promoting each of those factors to foster inclusive growth.
Longfeng Ye, Peter Robertson, 01 February 2016
The World Bank has identified 37 countries as being in a ‘middle-income trap’, but few formal tests of the middle-income trap hypothesis exist. This column presents a new test based on a more nuanced observation that incorporates information on a country’s long-run growth path. Only seven out of 46 middle-income countries are found to be potentially ‘trapped’. Some countries that are usually considered to be trapped may just be growing very slowly.
Mariacristina De Nardi, Giulio Fella, Fang Yang, 22 December 2015
Thomas Piketty’s "Capital in the Twenty-First Century" quantified the evolution of wealth inequality and concentration over time and across a number of countries. This column examines existing macroeconomic models of wealth inequality through the lenses of the facts and ideas in Piketty’s book. It further examines the importance of the mechanism that Piketty champions – post-tax rate of return on capital. Gaps in existing knowledge and directions for future research are identified.
Daniel Waldenström, 20 December 2015
Recent work on the importance of wealth and capital shows that it has fluctuated grossly over time in Europe. This column examines whether this pattern carries over to smaller, late-industrialising countries by looking at new historical evidence from Sweden. After being low in the pre-industrial era, Swedish wealth levels came into line with the rest of Europe in the 20th century. However, government wealth grew much faster and became more important in Sweden, largely due its public pension system. These findings highlight the role of economic and political institutions in the long-run evolution of national wealth.
Facundo Alvaredo, Tony Atkinson, Salvatore Morelli, 08 December 2015
The concentration of personal wealth has received a lot of attention since the publication of Thomas Piketty’s Capital in the 21st Century. This column investigates the UK and finds wealth distribution to be highly concentrated. The data seem to suggest that the top wealth share has increased in the UK over the first decade of this century.
Facundo Alvaredo, Tony Atkinson, Salvatore Morelli, 06 September 2015
The concentration of personal wealth is now receiving a great deal of attention – after having been neglected for many years. One reason is the growing recognition that, in seeking explanations for rising income inequality, we need to look not only at wages and earned income but also at income from capital, particularly at the top of the distribution. In this paper, we use evidence from existing data sources to attempt to answer three questions: (i) what is the share of total personal wealth that is owned by the top 1 per cent, or the top 0.1 per cent? (ii) is wealth much more unequally distributed than income? (iii) is the concentration of wealth at the top increasing over time? The main conclusion of the paper is that the evidence about the UK concentration of wealth post-2000 is seriously incomplete and significant investment is necessary if we are to provide satisfactory answers to the three questions.
Alan Auerbach, Kevin Hassett, 03 March 2015
Piketty's justification for his proposed wealth tax relies on the notion that the rate of return on capital exceeds economic growth. This column challenges this basis, arguing that it fails to account for risk. The authors also examine the relative merits of a consumption tax, which may be more valid.
Jesper Roine, Henry Ohlsson, Daniel Waldenström, 08 August 2014
The extent to which lifetime incomes are determined by inherited wealth is a politically sensitive issue, but long-run evidence on this question is limited. This column presents evidence on Swedish inheritance flows since the early 19th century. Despite a long history of aristocracy, accumulated capital was small relative to income in pre-industrial Sweden. In more recent times, Sweden stands out as a country where the return of capital has not automatically translated into a return of inherited wealth.
Per Krusell, Tony Smith, 01 June 2014
Thomas Piketty’s new book has been widely praised for its empirical contribution, but his prediction of rising inequality rests on economic theory. This column argues that Piketty’s pessimistic forecast is based on an extreme – and unrealistic – assumption about households’ saving behaviour. According to standard theory, the wealth–income ratio would increase only modestly as growth falls, so declining growth would not be a powerful force for generating high inequality.
Tony Atkinson, Salvatore Morelli, 26 March 2014
Inequality – long ignored – is now centre stage in debate about economic policy around the globe. This column introduces the Chartbook of Economic Inequality, a summary of long-run changes in economic inequality for 25 countries over more than 100 years.
Angus Deaton, 20 March 2014
The world has become healthier and wealthier since 1960, as measured by life expectancy and GDP per capita. In this column Angus Deaton introduces his new book and argues that the world is indeed a better place than it used to be, albeit with big setbacks, and that progress opens up vast inequalities.
Michael Keen, 16 October 2013
Fiscal consolidation, and public concern that its pain be fairly spread, is putting tax systems under considerable pressure. This column takes stock of how they have been faring, and how they could do better.
Sambit Bhattacharyya, Jeffrey Williamson, 10 August 2013
What distributional effect do natural-resource booms have on wealth, income and economic power? Using Australia as a case study, this column argues that resource booms tend to exacerbate inequality. The distributional impact of commodity-price shocks in Australia yield important lessons for primary producers from the developmental south, and it’s important for resource-rich developing countries to design appropriate policies to tackle this inequality.
Josep Pijoan-Mas, Víctor Ríos-Rull, 30 September 2012
What explains differences in life expectancy at age 50? This column looks at the effect of wealth, education, and marital status. It finds that by far the most important factor is education, and explores what this might mean for policy.
Heiko Hesse, 16 October 2008
This column examines the impact of stock market valuation changes on consumption and investment in emerging markets. Though the effects are smaller than those in advanced economies, emerging market policymakers ought to pay attention to how equity price swings will transmit business cycles and impact aggregate demand.
Quamrul Ashraf, Oded Galor, 13 September 2007
A thousand years ago, Asia was ahead. Why is Europe richer now? Asia was geographically less vulnerable to cultural diffusion and thus benefited from enhanced assimilation, lower cultural diversity and greater accumulation of society-specific human capital; this was an edge in the agricultural stage. Greater cultural rigidity, however, diminished the ability to adapt to a new technological paradigm, delaying their industrialisation.
Graziella Bertocchi, 15 July 2007
Inheritance tax revenues have long been declining in all OECD countries, both in terms of total revenues and GDP. This trend is explained by the secular decline of wealth inequality, and is also influenced by differential rates of tax avoidance and by the evolving composition of wealth.