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Capital is Back: Wealth-Income Ratios in Rich Countries 1700–2010

Listed author(s):
  • Thomas Piketty
  • Gabriel Zucman

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 United States, United Kingdom, 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 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. JEL Codes: E10, E20, D30, D31, D33.

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File URL: http://hdl.handle.net/10.1093/qje/qju018
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Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 129 (2014)
Issue (Month): 3 ()
Pages: 1255-1310

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Handle: RePEc:oup:qjecon:v:129:y:2014:i:3:p:1255-1310
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  1. Wojciech Kopczuk & Joseph P. Lupton, 2007. "To Leave or Not to Leave: The Distribution of Bequest Motives," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 207-235.
  2. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 249-283.
  3. Babeau, Andre, 1983. "The Macro-Economic Wealth-Income Ratio of Households," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 29(4), pages 347-370, December.
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  5. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 61-103.
  6. Simon, Julian L, 1990. "Great and Almost-Great Magnitudes in Economics," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 149-156, Winter.
  7. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
  8. Piketty, Thomas & Zucman, Gabriel, 2014. "Wealth and Inheritance in the Long Run," CEPR Discussion Papers 10072, C.E.P.R. Discussion Papers.
  9. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
  10. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
  11. repec:ucp:bkecon:9780226301532 is not listed on IDEAS
  12. Gabriel Zucman, 2013. "The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors?," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 1321-1364.
  13. Luci Ellis & Kathryn Smith, 2010. "The Global Upward Trend in the Profit Share," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(3), pages 231-256.
  14. repec:oup:qjecon:v:129:y:2013:i:1:p:61-103 is not listed on IDEAS
  15. Kevin O’rourke & Jeffrey Williamson, 2005. "From Malthus to Ohlin: Trade, Industrialisation and Distribution Since 1500," Journal of Economic Growth, Springer, vol. 10(1), pages 5-34, 01.
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