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Inherited vs self-made wealth: theory & evidence from a rentier society (Paris 1872-1937)

Postel-Vinay, Gilles and Piketty, Thomas and Rosenthal, Jean-Laurent (2011) Inherited vs self-made wealth: theory & evidence from a rentier society (Paris 1872-1937). CEPR Discussion Paper, No. DP8411. London School of Economics, Centre for economic policy research, London, UK.

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Identification Number: No. DP8411

Abstract

This paper divides the population into two groups: the "inheritors" or "rentiers" (whose wealth is smaller than the capitalized value of their inherited wealth, i.e. who consumed more than their labor income during their lifetime); and the "savers" or "self-made men" (whose wealth is larger than the capitalized value of their inherited wealth, i.e. who consumed less than their labor income). Applying this simple theoretical model to a unique micro data set on inheritance and matrimonial property regimes, we find that Paris in 1872-1937 looks like a prototype "rentier society". Rentiers made about 10% of the population of Parisians but owned 70% of aggregate wealth. Rentier societies thrive when the rate of return on private wealth r is permanently and substantially larger than the growth rate g (say, r=4%-5% vs g=1%-2%). This was the case in the 19th century and early 20th century and is likely to happen again in the 21st century. In such cases top successors, by consuming part of the return to their inherited wealth, can sustain living standards far beyond what labor income alone would permit.

Item Type: Monograph (Working Paper)
Official URL: http://www.cepr.org/default_static.htm
Additional Information: © The Authors 2011
Subjects: H Social Sciences > HC Economic History and Conditions
Sets: Departments > Government
Collections > Economists Online
Date Deposited: 17 Nov 2011 15:11
Last Modified: 23 Nov 2011 14:54
URI: http://eprints.lse.ac.uk/id/eprint/39639

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