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

Author Info

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

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9588.

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Date of creation: Aug 2013
Handle: RePEc:cpr:ceprdp:9588
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Keywords: Capital; Income; Saving; Wealth;

Other versions of this item:

Find related papers by JEL classification:
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
  • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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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.
  4. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
  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. 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.
  9. 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.
  10. repec:ucp:bkecon:9780226301532 is not listed on IDEAS
  11. 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.
  12. repec:oup:qjecon:v:129:y:2013:i:1:p:61-103 is not listed on IDEAS
  13. 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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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Capital is Back: Wealth Ratios over Several Centuries
    by noreply@blogger.com (Carola Binder) in Quantitative Ease on 2013-09-09 22:54:00
  2. Piketty et la dépréciation du capital
    by ? in D'un champ l'autre on 2014-10-22 02:47:00
  3. Comment la répartition du patrimoine a-t-elle changé depuis un siècle aux Etats-Unis ?
    by ? in D'un champ l'autre on 2014-10-16 18:23:00
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  1. Capital is back: Wealth-income ratios in rich countries, 1700- 2010 (QJE 2014) in ReplicationWiki

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