IDEAS home Printed from https://ideas.repec.org/p/hal/pseptp/halshs-01109372.html
   My bibliography  Save this paper

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

Author

Listed:
  • Thomas Piketty

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Gabriel Zucman

    (Department of Mathematics [Berkeley] - UC Berkeley - University of California [Berkeley] - UC - University of California, LSE - London School of Economics and Political Science)

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.

Suggested Citation

  • Thomas Piketty & Gabriel Zucman, 2014. "Capital is Back: Wealth-Income Ratios in Rich Countries 1700–2010," PSE-Ecole d'économie de Paris (Postprint) halshs-01109372, HAL.
  • Handle: RePEc:hal:pseptp:halshs-01109372
    DOI: 10.1093/qje/qju018
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Maurice Obstfeld, 2012. "Does the Current Account Still Matter?," American Economic Review, American Economic Association, vol. 102(3), pages 1-23, May.
    2. Wojciech Kopczuk & Joseph P. Lupton, 2007. "To Leave or Not to Leave: The Distribution of Bequest Motives," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(1), pages 207-235.
    3. Thomas Piketty, 2011. "On the Long-Run Evolution of Inheritance: France 1820--2050," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1071-1131.
    4. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 61-103.
    5. 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.
    6. 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.
    7. Greenwood, Daphne T & Wolff, Edward N, 1992. "Changes in Wealth in the United States, 1962-1983: Savings, Capital Gains, Inheritance, and Lifetime Transfers," Journal of Population Economics, Springer;European Society for Population Economics, vol. 5(4), pages 261-288.
    8. Piketty, Thomas & Zucman, Gabriel, 2014. "Wealth and Inheritance in the Long Run," CEPR Discussion Papers 10072, C.E.P.R. Discussion Papers.
    9. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
    10. Gabriel Zucman, 2013. "The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 1321-1364.
    11. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    12. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    13. repec:oup:qjecon:v:129:y:2013:i:1:p:61-103 is not listed on IDEAS
    14. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66, National Bureau of Economic Research, Inc.
    15. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
    16. Charles I. Jones & Paul M. Romer, 2010. "The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 224-245, January.
    17. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(3), pages 249-283.
    18. repec:bla:revinw:v:29:y:1983:i:4:p:347-70 is not listed on IDEAS
    19. Robert Eisner, 1980. "Capital Gains and Income: Real Changes in the Value of Capital in the United States, 1946-77," NBER Chapters, in: The Measurement of Capital, pages 175-346, National Bureau of Economic Research, Inc.
    20. F. A. Lutz, 1961. "The Theory of Capital," International Economic Association Series, Palgrave Macmillan, number 978-1-349-08452-4 edited by D. C. Hague, December.
    21. Lane, Philip & Milesi-Ferretti, Gian Maria, "undated". "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
    22. repec:hal:pseose:halshs-01053616 is not listed on IDEAS
    23. Nicholas Kaldor, 1961. "Capital Accumulation and Economic Growth," International Economic Association Series, in: D. C. Hague (ed.), The Theory of Capital, chapter 0, pages 177-222, Palgrave Macmillan.
    24. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    25. 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.
    26. Fumio Hayashi, 1986. "Why Is Japan's Saving Rate So Apparently High?," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 147-234, National Bureau of Economic Research, Inc.
    27. Usher, Dan (ed.), 1980. "The Measurement of Capital," National Bureau of Economic Research Books, University of Chicago Press, number 9780226843001, September.
    28. repec:ucp:bkecon:9780226301532 is not listed on IDEAS
    29. 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, January.
    30. William G. Gale & John Sabelhaus, 1999. "Perspectives on the Household Saving Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 181-224.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Piketty, Thomas & Zucman, Gabriel, 2014. "Wealth and Inheritance in the Long Run," CEPR Discussion Papers 10072, C.E.P.R. Discussion Papers.
    2. Jones, C.I., 2016. "The Facts of Economic Growth," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 3-69, Elsevier.
    3. Amavilah, Voxi Heinrich, 2018. "Endogenous constraints, coefficients of economic distance, and economic performance of African countries – An exploratory essay," MPRA Paper 90065, University Library of Munich, Germany.
    4. Sergey Sinelnikov-Murylev & Sergey Drobyshevsky & Maria Kazakova & Michael Alexeev, 2016. "Decomposition of Russia's GDP Growth Rates," Research Paper Series, Gaidar Institute for Economic Policy, issue 167P, pages 123-123.
    5. Jakub Growiec, 2019. "The Hardware-Software Model: A New Conceptual Framework of Production, R&D, and Growth with AI," KAE Working Papers 2019-042, Warsaw School of Economics, Collegium of Economic Analysis.
    6. Amavilah, Voxi Heinrich, 2014. "Knowledge = Technology + Human Capital and the Lucas and Romer Production Functions," MPRA Paper 58847, University Library of Munich, Germany.
    7. Erauskin, Iñaki & Turnovsky, Stephen J., 2019. "International financial integration and income inequality in a stochastically growing economy," Journal of International Economics, Elsevier, vol. 119(C), pages 55-74.
    8. Amavilah, Voxi Heinrich, 2014. "Human Knowledge and a Commonsensical Measure of Human Capital: A Proposal," MPRA Paper 57670, University Library of Munich, Germany.
    9. van de Klundert, T.C.M.J. & Smulders, J.A., 1991. "Reconstructing growth theory : A survey," Other publications TiSEM 19355c51-17eb-4d5d-aa66-b, Tilburg University, School of Economics and Management.
    10. Adriana Di Liberto, 2007. "Convergence and Divergence in Neoclassical Growth Models with Human Capital," Economia politica, Società editrice il Mulino, issue 2, pages 289-322.
    11. Jordan Rappaport, 2000. "How does openness to capital flows affect growth?," Research Working Paper RWP 00-11, Federal Reserve Bank of Kansas City.
    12. repec:ebl:ecbull:v:2:y:2002:i:1:p:1-15 is not listed on IDEAS
    13. Bergant, Katharina, 2021. "The role of stock-flow adjustment during the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 110(C).
    14. Escobari Diego & Mollick André Varella, 2013. "Output growth and unexpected government expenditures," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 481-513, September.
    15. Serguei Kaniovski & Thomas Url & Helmut Hofer & Viola Garstenauer, 2021. "A Long-run Macroeconomic Model of the Austrian Economy (A-LMM 2.0). New Results (2021)," WIFO Studies, WIFO, number 67377.
    16. repec:bap:eebook:02 is not listed on IDEAS
    17. Lau, Sau-Him Paul & Sin, Chor-Yiu, 1997. "Observational equivalence and a stochastic cointegration test of the neoclassical and Romer's increasing returns models," Economic Modelling, Elsevier, vol. 14(1), pages 39-60, January.
    18. Gourinchas, Pierre-Olivier & Rey, Hélène, 2014. "External Adjustment, Global Imbalances, Valuation Effects," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 585-645, Elsevier.
    19. Aykut Kibritçioglu, 2002. "On the Smithian origins of "new" trade and growth theories," Economics Bulletin, AccessEcon, vol. 2(1), pages 1-15.
    20. Ekaterina Ponomareva & Alexandra Bozhechkova & Alexandr Knobel, 2012. "Factors of Economic Growth," Published Papers 172, Gaidar Institute for Economic Policy, revised 2013.
    21. Hideyuki Kamiryo, 2014. "Earth Endogenous System: To Answer the Current Unsolved Economic Problems (Second Edition)," Earth Endogenous System: To Answer the Current Unsolved Economic Problems (Second Edition), Better Advances Press, Canada, edition 2, volume 2, number 01 edited by Dr. Yisheng Huang, May.
    22. Barro, Robert J & Mankiw, N Gregory & Sala-i-Martin, Xavier, 1995. "Capital Mobility in Neoclassical Models of Growth," American Economic Review, American Economic Association, vol. 85(1), pages 103-115, March.

    More about this item

    Keywords

    United Kingdom; Germany; United States; Price level; France; wealth-to-income ratios;
    All these keywords.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:pseptp:halshs-01109372. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Caroline Bauer (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.