The Long Run History of Economic Inequality

Lead Research Organisation: Paris School of Economics
Department Name: Research

Abstract

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Description The World Top Incomes Database. The World Top Incomes Database, publicly and freely accessible on line at http://topincomes.parisschoolofeconomics.eu, provides statistical information on the shares of top income groups for 30 countries; two additional countries will be added to the list shortly, and over ten are under analysis. The construction of this database has been possible thanks to the research of over thirty contributing authors, those who have participated and those who are still working on the project. The database can be easily downloaded from the website, where users also find complete documentation of updates and methods.

Wealth and inheritance. Wealth-income ratios, inherited wealth, and wealth inequalities were high in the eighteenth to nineteenth centuries up until World War I, then sharply dropped during the twentieth century following World War shocks, and have been rising again in the late twentieth and early twenty-first centuries. We discuss the models that can account for these facts. We show that over a wide range of models, the long-run magnitude and concentration of wealth and inheritance are an increasing function of r-g, where r is the net-of-tax rate of return on wealth and g is the economy's growth rate. This suggests that current trends toward rising wealth-income ratios and wealth inequality might continue during the twenty-first century, both because of the slowdown of population and productivity growth, and because of rising international competition to attract capital.

Income inequality in the developing world. Has inequality declined or increased in developing countries over the last decade? This is a fact difficult to establish, as it seems to depend on the data source one is looking at. For instance, according to household surveys inequality declined in most Latin American countries and, in many cases, income concentration is surprisingly below the levels observed in the United States. However, tax records (imperfect as they are in the developing world) show much higher levels of income concentration, above the US, with a growing trend. In the case of the Middle East, as another example, data sources at the national level are insufficient to derive reliable estimates of top income shares. Irrespective of these uncertainties on within-country inequalities, there is no doubt that income inequality is extremely large at the level of the Middle East taken as whole, simply because regional inequality in per capita GNP is particularly large. Popular discontent might reflect the fact that perceptions about inequality and the (un)fairness of the distribution are determined by regional (and/or global) inequality, and not only on national inequality. Better data and more transparency in their production and provision are needed in the developing world.

Income distribution and gender. The glass ceiling needs to be examined in relation not only to the distribution of earnings, but also to the distribution of total incomes, bringing self-employment income and capital income into the picture. In countries with independent taxation of couples, it is possible to investigate the proportion of women in the top income groups. In Canada and the UK, the current situation is a long way from parity. The proportion of women in the top 1% is rising, but progress is slower, or non-existent, at the very top of the distribution. In Spain, the number of women in the top 1% has been rising over the last decade, but not in the top 0.1%, and while men in the top 1% get 60% of their income in the form of wages, women receive 70% of their income from capital and business profits. This indicates that income sources, and not only income levels, play a role in the distribution between genders.

Inequality in the British colonies. In India, income concentration declined between 1886 and independence, driven by the decline in income from commerce, trade, properties and learned profession and employment income; the provinces exhibited very different dynamics. At the beginning of the post-war colonial period, there were considerable differences in top income shares among the African colonies. Over the years leading up to independence, there was marked convergence. At the point of independence, all of the colonies had higher top shares than found at the time in the UK, France, and the Western offshoots.

Note added 15/Mar/2017: The World Top Incomes Database (WTID) was on line until November 2015, when it was subsumed by The World Wealth and Income Database (WID.world, available at www.wid.world). WID.world contains all the data available in the WTID, in addition to new series on wealth-income ratios and series on the distribution of wealth.
Exploitation Route Our results have had a considerable impact worldwide, reaching policymakers, academics, the media, and the general public, and they have been widely cited in Thomas Piketty's recent book 'Capital in the 21th century' as well as in his presentations. We would need to assure the sustainability of the website, and the updating and extension of the database.
Sectors Education,Financial Services, and Management Consultancy,Government, Democracy and Justice,Other
URL http://wid.world
 
Description Our project has generated robust results regarding the evolution of income and wealth inequality around the world, as well as a large volume of data (historical series of top income shares, top wealth shares, wealth-income ratios, income and wealth personal tax rates). They have added to existing estimates in the literature of top income shares. Most of these data have been included in the World Top Incomes Database, WTID, (renamed as WID.world, The World Wealth and Income Database in 2015-2017, and The World Inequality Database www.wid.world since 2018). We would like to mention the following points: 1) The WTID/WID.world is one of the main data sources in Thomas Piketty's bestseller "Capital in the XXIst Century" (2014, Harvard University Press). 2) The WTID/WID.world is one of the main data sources used in Anthony B. Atkinson's "Inequality. What can be done?" (2015, Harvard University Press). 3) According to Google Scholar, the WTID/WID.world has been cited in 490 academic works (as of February 2019) spanning from economics, to medicine, environment, political science, sociology, etc. 4) The WTID/WID.world has been cited in over 1,000 journal articles around the world, including references in The New York Times, The Guardian, The Wall Street Journal, Le Monde, El País, La Nación, The Economist, Newsweek, etc. 5) Our research on the top of the income and wealth distributions has had a noticeable impact on the research and policy agendas across international organisations (IMF, OECD, EC, ECLAC, etc.), all of which have either incorporated the topic to their regular reports, or commented on the results and their implications. 6) The concentration of personal wealth is now receiving a great deal of attention - after having been neglected for many years. One reason is the growing recognition that, in seeking explanations for rising income inequality, we need to look not only at wages and earned income but also at income from capital, particularly at the top of the distribution. Our research has certainly contributed to this phenomenon. 7) We make extensive use of administrative records (microdata and tabulations from income taxes, wealth taxes, inheritance records, or social security registers). Our research has contributed to the fact that an increasing number of countries, through their ministries of finance and tax agencies, has agreed to make those records accessible to researchers, both in the developed and the developing world. The situation is not ideal, as there is still much room for improvement, but the last years have seen considerable progress regarding data access. 8) Some of our results, particularly those on top income shares, have already had a large impact on the global debate on inequality, and on discussions about tax policy in specific countries. For instance, our work has been cited in the Economic Report of the President (United States, 2014, 2013, 2012), as well as in the foundations of the 2012 tax reform in Colombia. 9) Finally, we would like to stress that while our research has had (and still has) much international impact on the media and the discussions on economic and social policy, little seems to be accomplished by policy makers in order to curve the observed increase in income and wealth concentration in many countries.
Sector Education,Environment,Government, Democracy and Justice
Impact Types Societal,Economic,Policy & public services
 
Title The World Inequality Database 
Description The World Inequality Database was initially created as the The World Top Incomes Database (WTID) in January 2011 with the aim of providing convenient and free access to all the existing series. Thanks to the contribution of over a hundred researchers, the WTID expanded to include series on income inequality for more than thirty countries, spanning over most of the 20th and early 21st centuries, with over forty additional countries now under study. In December 2015, the WTID was subsumed into the WID, The World Wealth and Income Database. In addition to the WTID top income shares series, this first version of WID included an extended version of the historical database on the long-run evolution of aggregate wealth-income ratios and the changing structure of national wealth and national income. 
Type Of Material Database/Collection of data 
Year Produced 2018 
Provided To Others? Yes  
Impact 1) The databases (WTID first, and then WID.world) received 800,000 visits from more that 190 countries since inception. 2) The databases generated 450 citations (as of 27 April 2018) in academic articles according to Google Scholar. 3) The database is one of the main data sources cited in Piketty, Thomas (2014). Capital in the XXIst century, Harvard University Press. 4) The database is intended as a research tool for researchers all around the world. 5) The database has been widely cited in the press since inception (The Guardian, The Economics, WSJ, NYT, Le Monde, etc). 
URL http://www.wid.world
 
Title The World Top Incomes Database 
Description There has been a marked revival of interest in the study of the distribution of top incomes using tax data. Beginning with the research by Thomas Piketty (2001, 2003) of the long-run distribution of top incomes in France, a succession of studies has constructed top income share time series over the long-run for more than twenty countries to date. These projects have generated a large volume of data, which are intended as a research resource for further analysis. The World Top Incomes Database aims to providing convenient on line access to all the existent series. This is an ongoing endeavour, and we will progressively update the base with new observations, as authors extend the series forwards and backwards. Despite the database's name, we will also add information on the distribution of earnings and the distribution of wealth. Today, the database includes thirty countries, while around forty-five further countries are under study, and will be incorporated at some point. The database was on line until November 2015, when it was subsumed by the WID.world (The World Wealth and Income Database, at www.wid.world); see entry for WID.world. 
Type Of Material Database/Collection of data 
Year Produced 2012 
Provided To Others? Yes  
Impact 1) The database website received 300,000 visits from more that 130 countries since inception. 2) The database generated 147 citations (as of 13 Nov 2014) in academic articles according to Google Scholar. 3) The database is one of the main data sources cited in Piketty, Thomas (2014). Capital in the XXIst century, Harvard University Press. 4) The database is intended as a research tool for researchers all around the world. 5) The database has been widely cited in the press since inception (The Guardian, The Economics, WSJ, NYT, Le Monde, etc). 
 
Title The World Wealth and Income Database 
Description The World Wealth and Income Database was initially created as the The World Top Incomes Database (WTID) with the aim of providing convenient and free access to all the existing series on top income shares. Thanks to the contribution of over a hundred researchers, the WTID expanded to include series on income inequality for more than thirty countries, spanning over most of the 20th and early 21st centuries, and in some cases going back to the 19th century, with over forty additional countries now under study. In December 2015, the WTID was subsumed into the WID, The World Wealth and Income Database. In addition to the WTID top income shares series, this first version of WID included an extended version of the historical database on the long-run evolution of aggregate wealth-income ratios and the changing structure of national wealth and national income. We changed the name of the database from WTID to WID in order to express the extension in scope and ambition of the database, as well as the new emphasis on both wealth and income. At the same time, over the last years the distribution of personal wealth has been receiving increasing attention after having been neglected for decades. The work on top income shares was recently extended to study the long run evolution of top wealth shares. In January 2017, with the objective of reaching yet a wider audience of researchers and general public, we released the first version of the more user-friendly website, WID.world. In March 2018, the name of the database was changed to The World Inequality Database (see separate entry). 
Type Of Material Database/Collection of data 
Year Produced 2017 
Provided To Others? Yes  
Impact 1) The databases (WTID first, and then WID.world) received 500,000 visits from more that 190 countries since inception. 2) The databases generated 357 citations (as of 15 Mar 2017) in academic articles according to Google Scholar. 3) The database is one of the main data sources cited in Piketty, Thomas (2014). Capital in the XXIst century, Harvard University Press. 4) The database is intended as a research tool for researchers all around the world. 5) The database has been widely cited in the press since inception (The Guardian, The Economics, WSJ, NYT, Le Monde, etc). 
URL http://www.wid.world