Inheritance flows in Sweden, 1810–2010
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.
Thomas Piketty’s book Capital in the Twenty-First Century (Piketty 2014) has received enormous attention since its publication. A fundamental question raised is whether a person’s lifetime income is the result of his or her own efforts or, alternatively, founded on inheritance. Even for those who believe that inequality does not matter as long as it is based on one’s own effort, the potential of a return to high levels of inequality based on inheritance is a totally different matter. To many people, such a development would be much less acceptable than increased inequality per se.
Economic history Europe's nations and regions Poverty and income inequality
Sweden, Inequality, inheritance, wealth, capital, capital accumulation
Is Piketty’s ‘Second Law of Capitalism’ fundamental?
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.
Over the last several weeks, we have thought quite a bit about the main message in Thomas Piketty’s now world-famous book, Capital in the Twenty-First Century (Piketty 2014). We have also discussed it at great length with colleagues. In sum, at least in our departments, there has been a massive collective effort at interpreting both the material presented in the book and the background material on which the book builds. In this column we would like to present one perspective on the book that does not seem to have attracted sufficient attention in the public discussions.
Poverty and income inequality
growth, Inequality, wealth, saving, savings
The chartbook of economic 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.
Inequality – long ignored – is now centre stage in debate about economic policy around the globe. The 2007-2008 collapse of the global financial system and the subsequent economic downturn/debt crises have acted as a catalyst for growing anxiety around the increasing dispersion of incomes within most advanced economies. We are not “all in it together”.
Poverty and income inequality
wealth, income, inequalities
The great escape from death and deprivation
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.
Nearly 40 years ago, the demographer Samuel Preston (1975) wrote about changing patterns of life expectancy and income around the world. That paper set the agenda for thinking about global health and global wealth. Its key figure remains useful for describing past and current progress in health and wealth – where we have been and where we are going – as well as for looking at the great health catastrophes of the second half of the twentieth century.
Development Politics and economics
wealth, health, inequalities
Tax policy in (and for) hard times
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.
Tax policy, like everything else, has been through tough times since the onset of the crisis. First, tax policy was to stimulate the economy (Heady 2011). Now it is to help consolidate the fiscal position – always with considerable urgency and all in the midst of public anger and disquiet.
What state has all this left our tax systems in? In the latest Fiscal Monitor (IMF 2013), my colleagues and I take a close look.
Macroeconomic policy Taxation
Inequality, wealth, taxation, fiscal policy, fiscal consolidation, global crisis
Distributional consequences of natural-resource booms: Lessons from Australia
Sambit Bhattacharyya, Jeffrey G. 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.
Commodity-price shocks have powerful but unequal effects on labour, capital and land. A large literature, often referred to as the ‘Dutch Disease’ literature, documents the effects of commodity booms on factors of production (Corden and Neary 1982). An increase in global commodity demand and a subsequent rise in commodity prices trigger a sharp rise in commodity exports. Typically, this causes an appreciation in the exporter’s real exchange rate which in turn harms competitiveness of other tradeable sectors, like agriculture and manufacturing.
Development International trade
Inequality, wealth, income, Australia
Who lives longer?
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.
Economists have long been worried about income inequality and its effects on welfare. For instance, workers with a college degree earn on average much more than those who did not complete high school. This disparity translates into large differences in consumption levels and hence welfare (see, for instance, Heathcote et al. 2010). We argue, however, that these welfare differences are dwarfed by the differences in longevity between individuals in different socioeconomic groups, and mainly by differences in longevity between individuals of different educational levels.
Education Health economics Poverty and income inequality
education, wealth, health, life expectancy
Stock market wealth effects in emerging market countries
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.
There are a few channels through which asset price changes affect consumption. For instance, consumption depends on peoples’ expectations of wage income and equity price increases can signal higher income growth. Financial assets play a significant role in peoples’ permanent (life-cycle), income so changes in the stock market could have an effect on private consumption expenditure.
wealth, emerging markets, stock markets
Cultural assimilation, cultural diffusion and the origin of the wealth of nations
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.
At the start of the 2nd millennium CE, civilisations of Asia were arguably well ahead of European societies in both wealth and knowledge. By the 12th century, China employed water-driven machinery to make textiles and coke-based smelting to produce iron, technologies that would not appear in Europe for more than five hundred years. Yet, during the process of the Industrial Revolution, the technological leaders of the pre-industrial era were leapfrogged by European economies that accelerated into the modern age of sustained economic growth.
Economic history Productivity and Innovation
wealth, cultural assimilation, cultural diffusion
The uncertain future of inheritance taxation
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.
One of Sarkozy’s electoral promises to the French people during his recent electoral campaign has been a drastic reduction of the inheritance tax. In a country where a wealth tax on large fortunes has been introduced as recently as 1989, this has undoubtedly been perceived as a substantial break with the past.
tax, inheritance, wealth