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Capital is back: wealth-income ratios in rich countries 1700-2010

Piketty, Thomas and Zucman, Gabriel (2014) Capital is back: wealth-income ratios in rich countries 1700-2010. Quarterly Journal of Economics, 129 (3). pp. 1255-1310. ISSN 0033-5533

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Identification Number: 10.1093/qje/qju018

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=sgβ=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.

Item Type: Article
Official URL: http://www.oxfordjournals.org/en/
Additional Information: © 2014 The Authors
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
JEL classification: D - Microeconomics > D3 - Distribution > D30 - General
D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
D - Microeconomics > D3 - Distribution > D33 - Factor Income Distribution
E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E10 - General
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E20 - General
Sets: Departments > Economics
Date Deposited: 14 Apr 2016 09:39
Last Modified: 20 Jun 2020 01:56
URI: http://eprints.lse.ac.uk/id/eprint/66106

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