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

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 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=sg 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.

Credit and the Labor Share: Evidence from U.S. States

“…We carry out our benchmark analysis for the period of 1976-1996, but also show that our results hold for 1997-2005. Piketty and Zucman (2014) similarly find evidence for the growing role of capital. On the other hand, using microeconometric estimates of the elasticity of substitution between capital and labor, Oberfield and Raval (2014) find that the decline in the labor share originates from factors that affect technology, including automation and offshoring, rather than mechanisms that work mainly through factor prices.…”

Top income shares and aggregate wealth-income ratio in a two-class corporate economy

“…Table 6 shows how the growth rate of a wealth-income ratio is broken down into the three growth components, capital gain induced growth of wealth, saving induced growth of wealth and the growth of income, using the language of Piketty and Zucman (2014). The decomposition is based on a fairly straightforward identity 27 :…”

“…As well-known, Piketty (2014) and Piketty and Zucman (2014) used the textbook Solow growth model to explain the observed increase in the capital income share. In this neoclassical account, the increase in the wealth-income ratio is seen as a key driving force behind the rise in the capital share.…”

Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead

“…Indeed, increasing income (Atkinson et al, 2011) and wealth (Piketty and Zucman, 2014) inequalities induced households to indebt more and more over time paving the way to the subprime mortgage crisis (Fitoussi and Saraceno, 2010;Stiglitz, 2011).…”