Net Wealth Distribution Research Articles

Belgium’s Successful Ride on the Elephant? The Diverging Effects of High Homeownership Rates on Inequalities

ABSTRACT This paper studies the contradictory effects of pro-homeownership policies on inequalities through the case of Belgium. While the literature describes high homeownership rates as levellers of wealth inequalities, this paper finds, using national microdata from ECHP and EU-SILC, that different mechanisms underlying homeownership growth have had contradictory effects on economic inequalities, even in the absence of a housing crisis or increase in income inequalities. Inequalities in the weight of rental costs have risen for newly contracted rental agreements in the last decade, while wealth inequalities are rising because of an increasingly exclusive mortgage-credit market. Current measurements of wealth inequalities are based on the distribution of net wealth, thereby missing the evolution of the difference between mean wealth and no wealth and the dynamic nature of wealth accumulation. Therefore, inequalities are rising in Belgium as poorer renters are increasingly constrained by rental costs when they are increasingly excluded from accessing homeownership.

Wealth distribution and monetary policy

Net wealth is distributed differently across various age cohorts in European countries. The net wealth distribution pattern in Western EU countries conforms to the life cycle hypothesis, whereas net wealth accumulation peaks at earlier ages in Eastern European countries. This study investigates the underlying reasons for these differences in net wealth distribution and evaluates how they affect monetary policy transmission. To this end, we develop a modified New Keynesian model with a multiperiod overlapping generations demand side to account for demographic and productivity-gap factors, analyzing their interactions with monetary policy within a general equilibrium setting. Using the Household Finance and Consumption Survey database, we calibrate the model for two sets of European countries and replicate the shape of net wealth distribution. Our findings suggest that the shape of net wealth distribution by age significantly determines monetary policy effectiveness and should be considered when designing and implementing monetary policy.

A micro perspective on r > g

AbstractBy exploiting large‐scale administrative data on income and estimated personal wealth in Norway from 2010 to 2018, this paper establishes the first micro‐level analysis of the difference between the real return on wealth and the real growth rate of total pre‐tax income, across the entire net wealth distribution. We show that for the top 40% of the distribution, the aggregate of 1.8% underestimates its micro counterpart , while the opposite happens for the bottom 60%. Moreover, for the bottom 50% of the net wealth distribution, it is indeed the case that . In addition, we run a simulation exercise demonstrating that the full distribution of —which has been shown to be positively associated with the position in the net wealth distribution—delivers a higher predictive power for the study of wealth inequality than simply focusing on the aggregate . All results are robust to the exclusion of imputed rents from the income definition.

The interest rate exposure of euro area households

We estimate the “unhedged interest rate exposure” (URE) of euro area households. The URE, defined by Auclert (2019), is a welfare metric that captures the extent to which households are exposed to changes in real interest rates, and allows an assessment of the redistributive effects associated with monetary policy decisions.We examine the distribution of UREs along the net wealth, income, age and housing status distributions for the euro area as a whole and for individual countries, and document substantial heterogeneity across these dimensions. Households at the lower end of the net wealth distribution, younger households and mortgagors have negative interest rate exposure and would lose out from an increase in interest rates, all else being equal. Wealthy households, higher income and older households, as well as outright homeowners would stand to benefit.The heterogeneity of exposures across euro area countries is largely attributable to the differences in the prevalence of adjustable rate mortgages (ARMs). Averaging across households in euro area countries, households in Austria, Germany, Italy and Malta stand to benefit from an increase in the interest rate, whereas households in Cyprus, Ireland, the Netherlands, Portugal and Spain would lose out.

Distributional consequences of asset price inflation in the Euro Area

We study the distributional consequences of housing price, bond price and equity price increases for Euro Area households using data from the Household Finance and Consumption Survey (HFCS). The capital gains from bond price and equity price increases turn out to be concentrated among relatively few households, while the median household strongly benefits from housing price increases. The capital gains from bond price increases (relative to household net wealth) do not correlate with household net wealth (or income). Bond price increases thus leave net wealth inequality largely unchanged. In contrast, equity price increases largely benefit the top end of the net wealth (and income) distribution, thus amplify net wealth inequality. Housing price increases display a hump shaped pattern over the net wealth distribution, with the poorest and richest households benefitting least, but there exists considerable heterogeneity across Euro Area countries. The ECB's OMT announcements over the summer of 2012 had quantitatively similar distributional implications as an unexpected loosening of the policy rate by about 175 basis points.

Drivers of wealth inequality in euro area countries: the effect of inheritance and gifts on household gross and net wealth distribution analysed by applying the Shapley value approach to decomposition

This paper investigates the sources of inequality in household gross and net wealth across eight euro area countries applying the Shapley value approach to decomposition. The research draws on micro data from the Eurosystem Household Finance and Consumption Survey 2010. Dispersion in bequests and inter vivos transfers obtained by households are found to have a remarkable effect on wealth inequality that is stronger than that of income differences. In Austria, Germany and Cyprus the contribution of real and financial assets inherited or received as gifts to gross and net wealth inequality attains about 40 per cent. Nevertheless, the distribution of household characteristics (age, education, size, number of adults and children in the household, marital status) within countries also shapes the observed wealth dispersion.

A National Wealth Approach to Banking Crises and Financial Stability

The paper explores a different, supplementary way to assess and manage a particular type of banking crises, those arising from a rise of nonperforming loans to the corporate sector. It relies on a 'national wealth approach,' focusing on the distribution of net wealth among economic sectors and its interaction with developments in the banking system. It identifies avenues for policy response optimization, based on an integrated macrofinancial analytical framework, both for the prevention and the resolution of these types of economic events.

Intergenerational Transfers and Wealth in the Euro-Area: The Relevance of Inheritances and Gifts in Absolute and Relative Terms

Private wealth is a crucial factor for the economic well‐being of households. Key determinants of private wealth include intergenerational wealth transfers (gifts and inheritances), which are gaining importance since 1990, as research suggests. We conduct a detailed investigation of the distribution of wealth transfers in eight Euro‐area countries. First, we investigate the patterns of prevalence and level of past wealth transfers in the individual countries: Who received transfers, and what is their present value in absolute terms? We find that in most countries the percentages of households with a transfer as well as the mean present value of those transfers is increasing along the distribution of net wealth. Using a series of country‐specific multivariate regressions, we find that households with higher income and education levels have both a higher probability of receiving transfers and higher absolute transfer value. We then analyze the present value of transfers as a percent of current net worth. Here, in relative terms, some of the results are reversed, as the relative importance of intergenerational transfers does not increase with the level of wealth or income. Using a fractional logit regression we conclude that for higher income quintiles the share of current net worth due to past intergenerational transfers tends to be decreasing.

A National Wealth Approach to Banking Crises and Financial Stability

The paper explores a different, supplementary way to assess and manage a particular type of banking crises, those arising from a rise of nonperforming loans to the corporate sector. It relies on a “national wealth approach,” focusing on the distribution of net wealth among economic sectors and its interaction with developments in the banking system. It identifies avenues for policy response optimization, based on an integrated macrofinancial analytical framework, both for the prevention and the resolution of these types of economic events.

Distributional Consequences of Asset Price Inflation in the Euro Area

We study the distributional consequences of housing price, bond price and equity price increases for Euro Area households using data from the Household Finance and Consumption Survey (HFCS). The capital gains from bond price and equity price increases turn out to be concentrated among relatively few households, while the median household strongly benefits from housing price increases. The capital gains from bond price increases (relative to household net wealth) do not correlate with household net wealth (or income). Bond price increases thus leave net wealth inequality largely unchanged. In contrast, equity price increases largely benefit the top end of the net wealth (and income) distribution, thus amplify net wealth inequality. Housing price increases display a hump shaped pattern over the net wealth distribution, with the poorest and richest households benefitting least. With regard to the latter finding there exists considerable heterogeneity across Euro Area countries.

The Pattern of Home Ownership Across Cohorts and its Impact on the Net Wealth Distribution: Empirical Evidence from Germany and the US

In this empirical paper we analyze the link between homeownership across cohorts and the net wealth distribution. In particular we are interested in the effect of the pattern of ownership across cohorts. Given that wealth accumulates over the life-cycle and that owners are wealthier than renters, past tenure choices, affecting today's share of owners for different cohorts, should be related to current wealth levels and inequality. In order to gauge the effect of the ownership structure over cohorts on the distribution of net wealth we impose the homeownership pattern of the US on Germany and ask: What would the net wealth distribution in Germany look like if German households were distributed across tenure status along cohorts the same way as those in the US? Our results indicate that the ownership rate and pattern within cohorts is closely linked to the wealth distribution. Imposing the structure of the US on Germany leads to a large increase in the German median and reduces wealth inequality. We show that some of these effects can be attributed to the difference in ownership shares between old cohorts in Germany and the US as often mentioned in the literature, but this effect appears to be less pronounced than expected. Past tenure choice indeed affects today's net wealth distribution.

A Wealth Tax on the Rich to Bring Down Public Debt? Revenue and Distributional Effects of a Capital Levy in Germany

AbstractThe idea of higher wealth taxes to finance the mounting public debt in the wake of the financial crisis is gaining ground in several OECD countries. We evaluate the revenue and distributional effects of a one‐time capital levy on personal net wealth that is currently on the political agenda in Germany. We use survey data from the German Socio‐Economic Panel (SOEP) and estimate the net wealth distribution at the very top, based on publicly‐available information about very rich Germans. Since net wealth is strongly concentrated, the capital levy could raise substantial revenue, even if relatively high personal allowances are granted. We also analyse the compliance and administrative costs of the capital levy.

Persistency of financial distress amongst Italian households: Evidence from dynamic models for binary panel data

This paper builds on existing studies on households’ financial distress and provides new evidence on the determinants of financial hardship in Italy and its persistence over time. It suggests a quantitative definition of financial distress based on the distribution of net wealth, and tests whether the probability of experiencing financial difficulty is persistent over time, using (random and fixed effects) dynamic models for binary panel data. The analysis exploits the longitudinal component of the Bank of Italy Survey on Household Income and Wealth for the period 1998–2006. Its results show that, after accounting for unobserved heterogeneity, past values of the outcome variable play a large part in explaining the probability of experiencing financial distress. In addition, the probability of financial vulnerability decreases with income and greater sophistication of the household portfolio and, at least in one of the model specifications, increases in areas with higher unemployment rates.

A Wealth Tax on the Rich to Bring Down Public Debt? Revenue and Distributional Effects of a Capital Levy

The idea of higher wealth taxes to finance the mounting public debt in the wake of the financial crises is gaining ground in several OECD countries. We evaluate the revenue and distributional effects of a one-time capital levy on personal net wealth that is currently on the German political agenda. We use survey data from the German Socio-Economic Panel (SOEP) and estimate the net wealth distribution at the very top, based on publicly available information about very rich Germans. Since net wealth is strongly concentrated, the capital levy could raise substantial revenue, even if relatively high personal allowances are granted. We also analyze the compliance and administrative costs of the capital levy.

A Wealth Tax on the Rich to Bring Down Public Debt? Revenue and Distributional Effects of a Capital Levy

The idea of higher wealth taxes to finance the mounting public debt in the wake of the financial crises is gaining ground in several OECD countries. We evaluate the revenue and distributional effects of a one-time capital levy on personal net wealth that is currently on the German political agenda. We use survey data from the German Socio-Economic Panel (SOEP) and estimate the net wealth distribution at the very top, based on publicly available information about very rich Germans. Since net wealth is strongly concentrated, the capital levy could raise substantial revenue, even if relatively high personal allowances are granted. We also analyze the compliance and administrative costs of the capital levy.

Wealth distribution models: analisys and applications

After Pareto developed his Type I model in 1895, a large number of income distribution models have been specified. However, the important issue of wealth distribution called the attention of researchers more than sixty years later. It started with the contributions by Wold and Whittle, and Sargan, both published in 1957. The former authors proposed the Pareto Type I model and the latter the lognormal distribution, but they did not empirically validate them. Afterward, other models were proposed: in 1969 the Pareto Types I and II by Stiglitz; in 1975, the loglogistic by Atkinson and the Pearson Type V by Vaughan. In 1990 and 1994, Dagum developed a general model and his type II as models of wealth distribution. They were validated with real life data from the U.S.A., Canada, Italy and the U.K. In 1999, Dagum further developed his general model of net wealth distribution with support (??,?) which contains, as particular cases, his Types I and II model of income and wealth distributions. This study presents and analyzes the proposed models of wealth distribution and their properties. The only model with the flexibility, power, and economic and stochastic foundations to accurately fit net and total wealth distributions is the Dagum general model and its particular cases as validated with the case studies of Ireland, U.K., Italy and U.S.A.