Working Paper: CEPR ID: DP8411
Authors: Thomas Piketty; Gilles Postel-Vinay; Jean Laurent Rosenthal
Abstract: This paper divides the population into two groups: the "inheritors" or "rentiers" (whose wealth is smaller than the capitalized value of their inherited wealth, i.e. who consumed more than their labor income during their lifetime); and the "savers" or "self-made men" (whose wealth is larger than the capitalized value of their inherited wealth, i.e. who consumed less than their labor income). Applying this simple theoretical model to a unique micro data set on inheritance and matrimonial property regimes, we find that Paris in 1872-1937 looks like a prototype "rentier society". Rentiers made about 10% of the population of Parisians but owned 70% of aggregate wealth. Rentier societies thrive when the rate of return on private wealth r is permanently and substantially larger than the growth rate g (say, r=4%-5% vs g=1%-2%). This was the case in the 19th century and early 20th century and is likely to happen again in the 21st century. In such cases top successors, by consuming part of the return to their inherited wealth, can sustain living standards far beyond what labor income alone would permit.
Keywords: inheritance; wealth accumulation; wealth distribution
JEL Codes: D30; E60; E10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rate of return on inherited wealth (r) (D33) | significant wealth concentration among inheritors (D31) |
| inheritors consume more than their labor income (D15) | significant concentration of wealth among inheritors (D31) |
| historical shocks (e.g., World War I) (N13) | weakening of the rentier society (P19) |
| r > g (C29) | top successors maintain living standards that exceed labor income (J89) |
| lower shares of rentiers today (D33) | structures of wealth accumulation remain similar (P19) |