World Distribution of Household Wealth

UNU-WIDER 30th Anniversary Conference

Wealth Distribution: What Next?

James Davies September 17, 2015

Outline I.

Background: estimating world wealth distribution II. Need for more Data a) Household balance sheets b) Micro statistics

III. Need for better data a) Include employer-based pensions? b) Pay more attention to upper tail

IV. Wealth data in China and India

I. Background: Estimating world wealth distribution James Davies, Susanna Sandström, Tony Shorrocks, Ed Wolff • “The world distribution of household wealth” in J.B. Davies (ed.) Personal Wealth from a Global Perspective (OUP, 2008) • “The level and distribution of global household wealth”, Economic Journal, March 2011 Tony Shorrocks, James Davies, Rodrigo Lluberas

• Credit Suisse Global Wealth Report & Databook 2010, 2011, 2012, 2013, 2014. http://economics.uwo.ca/people/davies_docs/credit-suisse-global-wealth-report2014.pdf

http://economics.uwo.ca/people/davies_docs/global-wealth-databook-2014-v2.pdf

Special topics in our annual reports 2010: Gender dimensions

Wealth Composition

2011: Long-run trends in levels

Wealth & Age

2012: Debt

Inheritance

2013: Mobility

Weath in the Eurozone

2014: Inequality trends since 2000

2015: Global middle class

Aggregate global wealth, 2000-2013 trillion USD 250

200

Africa India

150

Latin America China

100

Asia-Pacific Europe

50

North America

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Country wealth levels, 2013

Regional composition of global wealth distribution, 2013 100%

North America Latin America

90%

80%

Africa 70%

Europe 60%

China

50%

India

40%

30%

20%

Asia-Pacific

10%

0% 1

2

3

4

5

6 Decile

7

8

9

10

Global wealth distribution 2014, adults Decile

Share (%)

Decile

Share (%)

1

-0.3

8

2.6

2

0.1

9

7.1

3

0.1

10

87.4

4

0.3

Top 5%

75.7

5

0.5

Top 1%

48.2

6

0.8

Gini

0.911

7

1.4

Mean

$51,634

Wealth Share of Top 1% by Region, 2000-2014 Region

Year 2000

2004

2007

2009

2011

2014

Africa

39.7

40.0

39.4

42.4

42.9

46.1

Asia-Pacific

39.0

37.6

36.8

37.6

38.6

40.4

China

19.0

22.8

27.2

30.3

33.1

37.2

Europe

31.7

29.1

27.8

28.2

29.6

31.1

India

36.8

41.6

46.4

48.3

48.7

49.0

Latin America North America *

39.6

37.1

35.1

36.1

38.3

40.5

34.7

34.7

34.8

35.0

35.5

36.9

World

48.7

46.3

44.7

44.0

45.0

48.2

*new estimates

Wealth Share of Top 10% by Region, 2000-2014 Region

Year 2000

2004

2007

2009

2011

2014

Africa

74.4

74.9

73.9

76.0

76.3

78.3

Asia-Pacific

86.4

84.0

81.1

83.8

84.8

85.3

China

48.6

52.2

56.1

58.7

60.8

64.0

Europe

70.1

67.8

66.3

66.7

67.8

68.8

India

65.9

69.2

72.3

73.6

73.8

74.0

Latin America North America *

70.4

68.6

66.8

67.2

68.7

70.8

71.5

70.4

72.1

74.8

75.2

75.7

World

88.5

87.3

85.1

85.4

85.5

87.4

*new estimates

II. Need for more data: household balance sheets • Estimated by... national statistical organizations, central banks or ministries of finance • Counterparty data for most financial assets • Surveys, perpetual inventories for non-financial assets • Data available in 2014: – 17 countries complete - - all in OECD except Singapore, South Africa and Taiwan – 30 countries only financial assets & debts - - all OECD or Transition except Brazil, Colombia, Cyprus, Malta, and Thailand

II. Need for more data: micro statistics • Countries with survey data (28 current): – China 1995, 2002 & 2013 out soon – India every 10 yrs...... Latest 2012 – 15 EU countries with HFCS – 5 “Anglo-Saxon” countries: Australia, Canada, New Zealand, UK, US – Chile, Japan, Korea, Thailand – Denmark, Norway: survey/register data • Others soon: Ireland, Uruguay

III. Need for better data: include pensions? • Employer-based pensions in surveys: – Australia: 2003-04, 2005-06, 2009-10, 2011-12 – Canada, SFS: 1999, 2005, 2012 – UK, WAS: 2006-08, 2008-10, 2010-12 – US, SCF, only defined-contribution pensions: every 3 years since 1983 • Tax sheltered retirement saving plans only: – 15 EU countries with HFCS surveys – A few others

Wealth inequality with and without employer-based pensions, no “social security wealth” Country

Gini Coefficient W/O

With

Share of top 10% W/O

With

Australia, SIH 2012 Canada, SFS 2012

0.689

0.655

53.2%

0.67

0.59

52

UK, WAS 2006-08

0.581

0.606

40.7

US, SCF 2007/2010

0.860

0.809*

UK, Estate Tax 1994

46.4%

Share of top 20% W/O

With

60.7%

61.2%

69.9

64.8

58.5

61.6

43 43.4

*Takes into account effect of DC pensions in 2010 SCF microdata plus effect of DB pensions estimated by Wolff (2011) for 2007.

III. Need for better data: pay more attention to the upper tail • Upper tail hard to estimate in surveys: – Sampling error • Prob of finding anyone in top .01% by random sampling = 63.2%; of finding at least one billionaire in India = 0.1% • Partial solution: try to over-sample upper tail

– Non-sampling error • Under-reporting - - worse for financial assets • Differential response rates – Partial solution: weight according to characteristics correlated with wealth (income in tax records; geographic area...)

III. Need for better data: pay more attention to the upper tail (continued) • Don’t restrict attention to surveys – Estate and wealth tax records – Investment income multiplier method – Forbes and other rich lists

• Don’t randomly sample to determine the upper tail of the distribution of stars according to brightness. Go out and look up!

Pareto Top Tail Thousands of adults above wealth level (logarithmic scale)

1,000,000 100,000 10,000 1,000 100 10 1 100000

1000000

10000000

100000000

Weallth level (USD, Logarithmic scale) Unadjusted wealth estimates

Fitted Pareto

1E+09

Number of Forbes Billionaires by Country of Citizenship Country

2015

Country

1. USA

2001 269

2001 6

2015

535

15. Singapore

2. Japan

29

24

16. Israel

5

17

3. Germany

28

103

17. Sweden

5

23

4. Italy

18

39

18. Taiwan

5

33

5. Canada

16

39

19. Turkey

5

32

6. Switzerland

16

29

20. Argentina

4

5

7. France

15

47

21. India

4

92

8. Hong Kong

14

55

22. Malaysia

4

12

9. Mexico

13

16

23. Australia

3

27

10.UK

12

53

24. Greece

3

3

11.Russia

8

88

25. Philippines

3

11

12. S. Arabia

8

10

26. Chile

2

12

13. Spain

8

21

27. Denmark

2

0

14. Brazil

6

54

28. Indonesia

2

22

19

Country

2001

2015

Country

2001

2015

29. Ireland

2

5

44. N. Zealand

1

2

30. Netherlands

2

9

45. UAE

1

4

31. Norway

2

10

46. Austria

0

7

32. Portugal

2

0

47. Peru

0

6

33. S. Africa

2

7

48. Finland

0

5

34. S. Korea

2

30

49. Kazakhstan

0

5

35. Thailand

2

17

50. Kuwait

0

5

36. Venezuela

2

3

51. Nigeria

0

5

37. Belgium

1

3

52. Poland

0

5

38. Bermuda

1

0

53. Monaco

0

3

39. China

1

213

54. Morocco

0

3

40. Colombia

1

0

55. Oman

0

2

41. Egypt

1

0

42. Lebanon

1

7

43. Lichtenstein

1

0

56 – 65: Angola, Algeria, Georgia, Guatemala, Guernsey, Iceland,Lithuania Nepal, St. Kitts & N, Vietnam - - all 0, 1

Survey data versus our estimates– top 20% Survey Data

Country

Our Estimates

Share of top 20%

10%

1%

20%

10%

1%

Australia

61.8

66.0

Canada

67.2

47.7

73.2

57.0

Chile

56.4

37.6

79.7

68.9

China

59.3

41.4

75.2

64.0

Denmark

92.8

69.3

85.5

67.5

Finland

64.9

45.0

71.1

54.5

France

67.5

50.0

69.5

53.1

Germany

76.3

59.2

77.7

61.7

India

69.9

52.9

15.7

83.4

74.0

49.0

Indonesia

78.9

65.4

28.7

86.1

77.2

50.3

Italy

62.6

45.7

14.8

66.6

51.5

21.7

Japan

55.3

34.3

65.4

48.5

24.4

Survey data versus our estimates– top 20% Survey Data

Country

Our Estimates

Share of top 20%

10%

1%

20%

10%

1%

Netherlands

61.3

40.2

71.1

54.8

New Zealand

67.0

48.0

72.9

57.0

Norway

80.1

65.3

80.4

65.8

Spain

61.3

45.0

16.5

68.8

55.6

27.0

Sweden

67.0

24.0

68.6

30.8

Switzerland

71.3

34.8

71.9

30.9

Thailand

69.5

83.9

UK

62.8

44.3

12.5

69.5

54.1

23.3

USA

86.7

74.4

34.1

86.7

74.6

38.4

Average

68.5

52.8

22.6

75.4

62.1

33.9

IV. China and India • China: – Surveys in 1995, 2002 and 2012 by Institute of Economics, Chinese Academy of Social Sciences (CASS) • Nationally representative • Gini = 0.45 in 1995, 0.55 in 2002 • 2012 results not yet released

– China Household Finance Survey 2012 (Southwestern University of Finance and Economics, Chengdu) • Oversamples wealthy regions, emphasis on financial assets

China: unadjusted wealth distribution from CASS surveys Decile

Share (%) 1995

Share (%) 2002

Decile

Share (%) 1995

Share (%) 2002

1

2.0

0.7

8

11.8

11.8

2

3.8

2.1

9

15.2

17.9

3

5.0

3.0

10

30.7

41.4

4

6.1

3.8

Gini

0.40

0.55

5

7.2

4.8

Rural Per Capita

6

8.4

6.2

Urban Per Capita

13,698

46,134

7

9.8

8.3

All-China Per Capita

12,102

25,897

11,427 yuan 12,938 yuan

India: asset distribution from AIDIS surveys Share (%) 1992

Share (%) 2002

Share (%) 2012

1st quintile

0.9

1.0

0.8

2nd quintile

3.8

3.7

3.0

3rd quintile

8.4

8.2

6.7

4th quintile

17.4

17.2

14.9

9th decile

17.0

17.0

15.5

10th decile

52.5

52.9

59.1

Top 5%

38.2

38.3

Top 1%

16.2

15.7

Gini

0.668

0.669

Urban Mean/ Rural Mean

1.35

1.57

0.716

Conclusions - World wealth inequality: - High; fell 2000-07; rising since 2007

- Need for more data: - Household balance sheets (HBS) and wealth surveys needed in more countries, - Real assets need to be added in many HBSs - Need for better data a) Include employer-based pensions if possible b) Upper tail needs more work - China and India continue to lead the developing world in wealth measurement

Extra Slides

Wealth inequality with and without pensions including “social security wealth” Country

Gini Coefficient W/O

With

Share of top 10% W/O

With

Australia, SIH 2012 Finland, 2005

0.497

0.336

Germany, SOEP 2007

0.799

0.637

0.67

0.49

0.860

0.688*

UK, Estate Tax 1994 US, SCF* 2007/2010

52%

Share of top 20% W/O

With

60.7%

60.8%

36%

*Takes into account effect of DC pensions in 2010 SCF microdata plus effect of DB pensions & social security estimated by Wolff (2011).

Top Wealth Shares in Survey Data Country

Year

Unit

Share of top 25%

20%

10%

5%

2%

1.0%

Australia

2010

household

61.8

Austria

2010

household

77.1

61.7

Belgium

2010

household

61.2

44.1

Canada

2012

family

67.2

47.7

Chile

2011

household

56.4

37.6

China

2002

person

59.3

41.4

Cyprus

2010

household

72.4

56.8

Denmark

2009

family

92.8

69.3

Finland

2010

household

64.9

45.0

France

2010

household

67.5

50.0

Germany

2011

household

76.3

59.2

Greece

2009

household

56.7

38.8

India

2002

household

69.9

52.9

38.3

15.7

Indonesia

1997

household

78.9

65.4

56.0

28.7

Italy

2010

household

68.9

62.6

45.7

32.9

Japan

2009

household

62.8

55.3

34.3

19.3

21.0

14.8

0.5%

0.10%

Top Wealth Shares in Survey Data (continued) Country

Year

Unit

Share of top 25%

20%

10%

5%

2%

1.0%

21.7

16.5

Korea, Rep.

2011

household

63.9

Luxembourg

2010

household

66.7

51.3

Malta

2010

household

62.0

46.9

Netherlands

2009

household

61.3

40.2

New Zealand

2001

tax unit

67.0

48.0

Norway

2004

household

80.1

65.3

Portugal

2010

household

67.9

52.7

Slovakia

2010

household

48.9

32.8

Slovenia

2010

household

54.3

36.2

Spain

2008

household

61.3

45.0

32.6

Sweden

2007

adult

67.0

49.0

24.0

Switzerland

1997

family

71.3

58.0

34.8

Thailand

2006

household

69.5

UK

2008

adult

62.8

44.3

30.5

12.5

USA

2010

family

86.7

74.4

60.9

67.3

90.3

44.8

34.1

0.5%

0.10%

27.6

16.0

Global trends in wealth per adult, 2000-2013 USD per adult 50000

40000

30000

20000

10000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 net worth financial wealth debt

net worth at constant exchange rates non-financial wealth

Wealth per adult (USD) by region, selected years Region

2000

2007

2014

Africa

$2,894

$6,448

$5,080

Asia-Pacific

32,933

40,261

44,715

China

5,672

16,790

21,330

Europe

61,272

142,001

145,977

India

2,036

5,109

4,645

Latin America & Caribbean

11,159

20,151

22,997

North America

198,984

283,757

340,340

WORLD

31,680

52,316

56,016

Wealth per adult (USD) by region, constant exchange rates Region

2000

2007

2014

Africa

$2,494

$5,880

$6,241

Asia-Pacific

36,226

40,920

44,708

China

6,567

17,157

18,515

Europe

79,944

121,679

136,816

India

1,963

4,154

5,764

Latin America & Caribbean

8,727

18,747

25,842

North America

202,219

280,327

338,166

WORLD

35,355

49,252

54,714

Dollar millionaires by country of residence Spain,1% Sweden, 1% Netherlands, 1% Switzerland, 2% Canada, 3% Australia, 3% China, 3% Italy, 4% US, 39%

Germany, 5%

UK, 6%

France, 8%

Rest of World, 11%

Japan, 13%

Differences in wealth and in financial development • Bottom 80% of countries by GDP in 2011: – Wealth/GDP: 1.95 – Financial/Non-Financial Assets: 0.67

• Top 20% of countries by GDP in 2011: – Wealth/GDP: 4.04 – Financial/Non-Financial Assets: 1.27

Wealth Composition • Wealth dominated by Real Assets in low income countries • ”Financial Interrelations Ratio” rises with development Ratio = Financial Assets/Non-Financial Assets Goldsmith (1985) said: – Averages about 0.5 in LDCs – Approx 1.0 in Developed Countries • Large differences in wealth composition for countries at similar income • Debt a smaller % of Assets in low income countries

Asset composition, 2011 South Africa United States Japan Switzerland Denmark Singapore China Czech Republic France Indonesia India -40

-20

0

20

Non-financial assets

40

60

Financial assets

80

100

Debts

The global wealth pyramid, 2012

Source: Credit Suisse Global Wealth Databook, Shorrocks/Davies/Lluberas