Working Paper: CEPR ID: DP9588
Authors: Thomas Piketty; Gabriel Zucman
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 Codes: E21; E22; E25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rise in wealth-income ratios (D31) | long-run swing in relative asset prices (G19) |
| rise in wealth-income ratios (D31) | slowdown in productivity and population growth (O49) |
| net saving rate (s) (D14) | long-run wealth-income ratio (E25) |
| slowdown in productivity and population growth (O49) | long-run wealth-income ratio (E25) |
| capital policies (G32) | asset prices (G19) |
| demographic changes (J11) | saving and growth rates (O41) |
| historical context of capital destruction (N13) | observed wealth-income ratios (D31) |
| policy changes (J18) | capital accumulation (E22) |