Abstract
This paper estimates rates of return across the gross wealth distribution in eight European countries. Like differential saving rates, differential rates of return matter for post Keynesian theory, because they impact the income and wealth distribution and add an explosive element to growth models. We show that differential rates of return matter empirically by merging data on household balance sheets with long-run returns for individual asset categories. We find that (a) the composition of wealth differentiates three socioeconomic groups: 30% are asset-poor, 65% are middle-class home owners, and the top 5% are business-owning capitalists; (b) rates of return rise across all groups; and (c) rates of return broadly follow a log-shaped function across the distribution, where inequality in the lower half of the distribution is higher than in the upper half. If socioeconomic groups are collapsed into the bottom 95% workers and top 5% capitalists, then rates of return are 5.6% for the former and 7.2% for the latter.
Highlights
The distribution of wealth plays an important role in determining economic capabilities and in shaping the position of individuals in the socioeconomic structure
Since returns differ between wealth categories, such differences in ownership translate directly into differential returns on wealth for different socioeconomic groups
The composition changes from ‘other’ wealth being the dominant asset category at the bottom of the wealth distribution, to housing in the middle, and to business wealth increasing in importance at the top of the wealth distribution
Summary
The distribution of wealth plays an important role in determining economic capabilities and in shaping the position of individuals in the socioeconomic structure. Wealth is distributed much more unequally than income, but it is linked to political power For all these reasons, Post Keynesian economics has a long tradition of investigating the theory of wealth inequality (Pasinetti 1962, Dutt 1990, Palley 2012). Recent Post Keynesian thought has paid detailed attention to the functional distribution of income (Bhaduri and Marglin 1990; Barbosa and Taylor 2006; Stockhammer and Ederer 2008; Stockhammer, Onaran, Ederer 2009). This has shifted the focus somewhat from classes to the source of income. Since returns differ between wealth categories, such differences in ownership translate directly into differential returns on wealth for different socioeconomic groups
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