ACCOUNTING FOR WEALTH-INEQUALITY DYNAMICS: METHODS, ESTIMATES, AND SIMULATIONS FOR FRANCE

Measuring and understanding the evolution of wealth inequality is a key challenge for researchers, policy makers, and the general public. This paper breaks new ground on this topic by presenting a new method to estimate and study wealth inequality. This method combines fiscal data with household surveys and national accounts in order to provide annual wealth distribution series, with detailed breakdowns by percentiles, age, and assets. Using the case of France as an illustration, we show that the resulting series can be used to better analyze the evolution and the determinants of wealth-inequality dynamics over the 1970-2014 period. We show that the decline in wealth inequality ends in the early 1980s, marking the beginning of a rise in the top 1% wealth share, though with significant fluctuations due largely to asset price movements. Rising inequality in savings rates coupled with highly stratified rates of returns has led to rising wealth concentration in spite of the opposing effect of house price increases. We develop a simple simulation model highlighting how changes in the combination of unequal savings rates, rates of return, and labor earnings that occurred in the early 1980s generated large multiplicative effects that led to radically different steady-state levels of wealth inequality. Taking advantage of the joint distribution of income and wealth, we show that top wealth holders are almost exclusively top capital earners, and increasingly fewer are made up of top labor earners; it has become increasingly difficult in recent decades to access top wealth groups with one's labor income only.