Capital is Back: Wealth-Income Ratios in Rich Countries, 1700-2010
73 Pages Posted: 13 Aug 2013
Date Written: August 2013
Abstract
How do aggregate wealth-to-income ratios evolve in the long run and why? We address this question using 1970-2010 national balance sheets recently compiled in the top eight developed economies. For the U.S., U.K., Germany, and France, we are able to extend our analysis as far back as 1700. We find in every country a gradual rise of wealth-income ratios in recent decades, from about 200-300% in 1970 to 400-600% in 2010. In effect, today's ratios appear to be returning to the high values observed in Europe in the eighteenth and nineteenth centuries (600-700%). This can be explained by a long run asset price recovery (itself driven by changes in capital policies since the world wars) and by the slowdown of productivity and population growth, in line with the β=s/g Harrod-Domar-Solow formula. That is, for a given net saving rate s=10%, the long run wealth-income ratio β is about 300% if g=3% and 600% if g=1.5%. Our results have important implications for capital taxation and regulation and shed new light on the changing nature of wealth, the shape of the production function, and the rise of capital shares.
Keywords: Capital, Income, Saving, Wealth
JEL Classification: E21, E22, E25
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
A Theory of Optimal Capital Taxation
By Thomas Piketty and Emmanuel Saez
-
A Theory of Optimal Capital Taxation
By Thomas Piketty and Emmanuel Saez
-
A Theory of Optimal Inheritance Taxation
By Thomas Piketty and Emmanuel Saez
-
By Thomas Piketty and Emmanuel Saez
-
De Gustibus Non Est Taxandum: Heterogeneity in Preferences and Optimal Redistribution
-
Non-Linear Effects of Taxation on Growth
By Nir Jaimovich and Sergio T. Rebelo
-
The Promise of Positive Optimal Taxation: Normative Diversity and a Role for Equal Sacrifice
-
Aggregate Implications of Innovation Policy
By Andrew Atkeson and Ariel T. Burstein