A Micro Perspective on r > g

For which segments of the net wealth distribution are returns to wealth higher than growth rates of income? Although Piketty's r > g is conceived as a tool to highlight distributional concerns, it does not account for covariation between real rates of return and position in the net wealth distribution. By exploiting large-scale administrative data on estimated gross and net personal wealth in Norway from 2010 to 2018, this paper establishes the first micro-level analysis of the difference between the real return on wealth and the real growth rate of total pre-tax income across the entire net wealth distribution. We show that, for the top half of the distribution, the aggregate R > G underestimates its micro counterpart r>g, whilst the opposite happens for the bottom half, indicating that the micro r > g qualifies as a more precise measure to thoroughly analyze the dynamics of wealth inequality. We show as well that around 44% of the variation in r > g when moving up from the bottom to the top decile of the net wealth distribution is associated with scale dependence, whilst the residual variation can be attributed to persistent heterogeneity.