What Does the Global Future Hold? Wealth and Income Inequality Facundo Alvaredo Paris School of Economics & IIEP-UBA-Conicet & INET at Oxford UN Environment Programme – International Resource Panel June 10th, 2021 The distribution of personal wealth is receiving a great deal of attention… …after being neglected for many years • US (Kopczuk-Saez, 2004; Saez-Zucman, 2016, 2019) • France (Garbinti-Goupille-Piketty, 2020) • UK (Alvaredo-Atkinson-Morelli, 2017, 2018) • Spain (Alvaredo-Saez, 2010; Martínez Toledano, 2018; Alvaredo-Artola, forthcoming) • Italy (Acciari, Alvaredo, Morelli, 2021) • Denmark, Belgium, Germany, Sweden, Switzerland • Credit Suisse (Shorrocks and Davis), Allianz, Merrill Lynch, UBS,… reports • ECB/ONS/FRB network of wealth surveys, and related papers and reports • OECD Guidelines for Micro Statistics on Household Wealth and Database • LWS • Etc… Part II trends in Global inCome inequality Figure 2.3.2a top 1% vs. bottom 50% national income shares in the us and Western europe, 1980–2016 US 22% 20% 18% Top 1% US 16% 14% Share of national income (%) income national of Share 12% Bottom 50% US 10% 1980 1985 1990 1995 2000 2005 2010 2015 Part II trends in Global inCome inequality Reason: increasing recognition that weSource: WID.worldneed (2017). See wir2018.wid.world to look for data series and notes.at capital incomes In 2016, 12% of national income was received by the top 1% in Western Europe, compared to 20% in the United States. In 1980, 10% of national income was received by the top 1% in Western Europe, compared to 11% in the United States. and Figure 2.3.2a not only at earnings top 1% vs. bottom 50% national income shares in the us and Western europe, 1980–2016 US Western Europe 22% 24% 22% 20% 20% Bottom 50% Western Europe 18% Top 1% US 18% 16% 16% 14% 14% 12% Share of national income (%) income national of Share Share of national income (%) income national of Share 12% Bottom 50% Top 1% US 10% Western Europe 10% 8% 1980 1985 1990 1995 2000 2005 2010 2015 1980 1985 1990 1995 2000 2005 2010 2015 Source: WID.world (2017). See wir2018.wid.world for data series and notes. Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2016, 12% of national income was received by the top 1% in Western Europe, compared to 20% in the United States. In 1980, 10% of national income was receivedIn 2016, 22% of national income was received by the Bottom 50% in Western Europe. by the top 1% in Western Europe, compared to 11% in the United States. Western Europe 24% 70 World inequality report 2018 22% 20% Bottom 50% Western Europe 18% 16% 14% 12% Share of national income (%) income national of Share 10% Top 1% Western Europe 8% 1980 1985 1990 1995 2000 2005 2010 2015 Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2016, 22% of national income was received by the Bottom 50% in Western Europe. 70 World inequality report 2018 DISTRIBUTIONAL NATIONAL ACCOUNTS 563 80% From taxable to total labor income 70% Tax evasion & other 60% Employer fringe benefits & payroll taxes 50% Nonfilers 40% Wages and self-employment income 30% on tax returns % of national income 20% 10% Reason: increasing0% recognition that we need to look at capital incomes 1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 and not only at Source:earnings Appendix Table I-S.A8b. From taxable to total capital income 30% 25% Nonfilers & Retained earnings other 20% Corporate income tax 15% Income paid to pensions & insurance % of national income 10% Imputed rents + property tax 5% Dividends, interest, rents & profits reported on tax returns 0% 1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 Source: Appendix Table I-S.A8. FIGURE I From Taxable Income to National Income (1916–2014) Source: SaezThe and topZucman panel (2016) decomposes total labor income into (i) taxable labor income re- ported on individual income tax returns (taxable wages and the labor share— assumed to be 70%—of reported noncorporate business income); (ii) tax-exempt employee fringe benefits (health and pension contributions) and the employer share of payroll taxes; (iii) wages and labor share of noncorporate business income earned by nonfilers; (iv) tax evasion (the labor share of noncorporate business in- comes that evade taxes) and other discrepancies. The bottom panel decomposes total capital income into (i) capital income reported on tax returns (dividends, interest, rents, royalties, and the capital share of reported noncorporate business income); (ii) imputed rents net of mortgage interest payments plus residential property taxes; (iii) capital income paid to pensions and insurance funds; (iv) corporate income tax; (v) corporate retained earnings; (vi) tax evasion, nonfilers, nonmortgage interest and other discrepancies. Business taxes are allocated pro- portionally to each category of capital income. In both panels, sales taxes are allocated proportionally to each category of income. All categories are expressed as a fraction of national income (see Online Appendix Table I-A4 for complete details). Color artwork available at the online version of this article. Downloaded from https://academic.oup.com/qje/article-abstract/133/2/553/4430651 by guest on 01 April 2018 Reason: average personal wealth has increased substantially E.g.: UK 160,000 140,000 Marketable wealth 120,000 100,000 80,000 60,000 40,000 Wealth per adult £at2015 peradult prices Wealth 20,000 0 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Alvaredo, Atkinson and Morelli (2018) Reason: average personal wealth has increased substantially E.g.: Italy Source: Acciari, Alvaredo and Morelli (2021) publiC Versus priVate Capital dynamiCs Part III Reason: the ratio of private wealth to income has been rising Figure 3.1.1 net private wealth to net national income ratio in rich countries, 1970–2016 800% 700% Australia Canada 600% Germany Spain 500% France UK 400% Italy Japan US 300% Value of net private wealth (%200% of national income) 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2015, the value of net private wealth in the UK was 629% of net national income, i.e. it was worth 6.3 years of national income. Net private wealth is equal to private assets minus private debt. Net national wealth is equal to net private wealth plus net public wealth. Figure 3.1.2 net national wealth to net national income ratio in emerging and rich countries, 1990–2015 600% 500% 400% 300% Europe US-Canada Russia 200% China Value of net national wealth (% of 100%national income) 1990 1995 2000 2005 2010 2015 Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2015, the value of net national wealth in China was 487% of net national income, i.e. it was worth 4.9 years of national income. Net national wealth is equal to net private wealth plus net public wealth. Net private wealth is equal to new private assets minus net private debt. World inequality report 2018 159 publiC Versus priVate Capital dynamiCs Part III Figure 3.1.4b Public debt to net national income ratio in rich countries, 1970–2015 350% 300% Germany Spain 250% France UK 200% Japan US 150% 100% Value of public debt (% of national income) 50% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: WID.world (2017). See wir2018.wid.world for data series and notes. In 2015, the value of public debt in the US was 146% of net national income, i.e. it was worth 1.5 years of national income. Reason: the ratio of public wealth to income has been declining (cont.) Figure 3.1.5 the share of public wealth in national wealth in rich countries, 1978–2015 70% 60% 50% China France 40% Germany 30% Japan Norway 20% UK US 10% 0% Share of net public wealth in net national wealth (%) wealth national net in wealth public net of Share -10% 1978 1983 1988 1993 1998 2003 2008 2013 Source: Piketty, Yang and Zucman (2017). See wir2018.wid.world for data series and notes. In 2015, the share of public wealth in national wealth in France was 3% against 17% in 1980. Net public wealth is equal to public assets minus net public debt. Net national wealth is equal to net private wealth plus net public wealth. World inequality report 2018 163 UK: Top 10% and bottom 90% wealth share since 1895 Average wealth of Top 10%: 530 000 £ P90: 215 000 £ Average wealth of Bottom 90%: 50 000 £ Source: Alvaredo, Atkinson and Morelli (2018) UK: Top 1% wealth share since 1895 (inheritance data) 80 70 60 Wealth 50 40 30 20 Share of total personal wealth % personal wealth Share of total 10 0 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015 Source: Alvaredo, Atkinson and Morelli (2018) UK: Top 1% wealth share since 1895 (inheritance data) 70 60 50 40 30 Top 0.5% 20 Top 1-0.5% Share of total personal wealth % personal wealth Share total of 10 0 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015 Source: Alvaredo, Atkinson and Morelli (2018) UK: Top 1% wealth share: the role of housing assets Source: Alvaredo, Atkinson and Morelli (2018) Comparison of estimates across methods and debates.