Netherlands is and remains flat: On the distribution of (top) income and wealth, and Piketty

Transcription

1 Netherlands is and remains flat: On the distribution of (top) income and wealth, and Piketty Koen Caminada Professor Empirical analysis of social and tax policy Institute of Tax Law & Economics Nederlandse Economen Dag Seminar: Inequality 31 October 2014, Amsterdam Leiden University. The university to discover.

2 Motivation Concerns about trends in income inequality and wealth inequality: - Publications World Bank, OECD, EC and IMF - Nobel Prize Laureate Shiller (2013), Piketty (2014) - The Netherlands: WRR (2014), Salverda (2014) and Van Bavel (2014) Piketty (2014): Distribution of income and wealth will become increasingly unequal. Reason: return on capital > economic growth The wealthiest will earn higher and higher share of national income (video 3:11)..

3 Debate Social debate = normative use best available data fact finding research team Reform Social Security Leiden University - Distribution of income: extensive empirics available - Distribution of wealth: less well-known (trend, excluding or including pension savings, international comparison) Notes: - Piketty (2014) did not include the Netherlands in his book. Great data collection well-documented and he published in top journals, but his explanation is based on interpretation, expectations / forecasts, policy recommendation. - WRR (2014): Dutch income inequality is rising (Salverda, 2014), Dutch wealth inequality increases too (Van Bavel, 2014), as Piketty (2014) observed for many other countries.

4 Disentanglement Dutch Income Inequality Inequality equivalized market and disposable income (Gini), and the redistribution by social transfers and taxes Caminada et al (2014) 0,6 Gini disposable income redistribution social transfers redistribution taxes Gini market income 0,5 0,4 0,3 0,2 0,1 0,

5 Decomposition redistribution Redistribution (Gini PI -/- Gini BI) 41% 45% 49% Shares (programs) Pension benefits (second and third pillar) 20% 24% 26% Public old-age pensions (first pillar) 32% 29% 31% Taxes and social contributions 8% 17% 19% Disability schemes 12% 9% 6% Social assistance 13% 7% 5% Sensitivity analysis applying Theilindex, MLD, Atkinson index (α=0.5 en α=1) trend income inequality + redistribution are rather insensitive for choice global inequality measure.

6 In line with Dutch Statistics (CBS); contradicts with Salverda - Salverda (2013 and 2014) focusses on tails of the income distribution inequality is measured by S10:S1 for Conclusion: inequality rose steadily now highest level ever. However - No global measure of inequality applying S10:S1 means: 80 percent of all households are not taken into account - Break in time-series CBS IPO 2000 is problematic - No equivalized incomes: more people in rich households - Focus on trend S10/S1 fast reader: inequality rose sharply. - However: distribution of equivilazed disposable income is rather stable over time (Gini, MLD, Atkinson (α=.5)) or became slightly more unequal (S10:S1). Things are not as black as it seems (Salverda / WRR)

7 Ratio S80/S20, figures Dutch Statistics (CBS)

8 Note: Share of top incomes increased in many countries, but not in the Netherlands Source: Morelli, Smeeding & Thompson (2014: p. 97)

9 Dutch share top incomes is rather stable 10 Top 1% Top 0.5% Source: The World Top Incomes Database, Accessed

10 Distribution of wealth in the Netherlands Private wealth 2012 (CBS) - Private wealth = balance of assets and debts - Assets: bank deposits, stocks, real estate and business assets - Debts: mortgages and consumer credit - Not included (CBS): 1. Built-up pension rights and annuities (> mld) 2. Deposits mortgages (spaar- en levenhypotheken) ( 80 mld) 3. Cash, durable consumer goods, jewelry and antique 4. Debts to mail-order firms 5. Other

11 How unequal is private wealth distributed? - Top 1% households: 23% of total private wealth - Top 5% 45% - Top 10% 61%; mainly pensioners (36%) and selfemployed and DGA (29%) - Bottom: bottom 60% of all households holds a cumulated private wealth of 0. - Lowest decile private wealth: especially employees and civil servants (76%). Negative net wealth of housing ( hun huizen staan onder water ). Conclusion: private wealth unequally distributed Gini of private wealth = 0,80.

12 Shares of private wealth per decile and Lorenz curve of private wealth, % 60% 50% 40% 30% 20% 10% 0% -10% deciles 100% 80% 60% 40% 20% 0% -20% 0% 20% 40% 60% 80% 100% percentiles housholds (private wealth) Source: own calculations based on CBS StatLine In line with Van Bavel / WRR

13 Private wealth unequal distributed among age cohorts

14 Effect of built-up pension rights - Important for an international comparison - Van Bavel (2014): pension savings are not comparable with private wealth transfer, sell / salable and heritable? - However: in both cases (delayed) consumption Our approach: presentation of the distribution of wealth with and without pension savings - CBS micro data Pensioenaanspraken en vermogen (2010) - Premiums third pillar pension plans from 1989 (annuities) - All amounts gross both private wealth and supplementary pension rights will face taxes (inter alia depends on the exact composition of capital). - The amount and effect of tax claims on (the distribution of) wealth is not clear.

15 Dutch Lorenz curves of wealth distribution, with and without built-up pension rights, % 80% 60% private wealth including pension savings private wealth 40% 20% 0% -20% 0% 20% 40% 60% 80% 100% percentiles housholds (wealth) Source: own calculations based on CBS StatLine

16 Results Blue curve lies entirely within red curve private wealth including pension savings is less unequally distributed (Lorenz Dominance) Wealth distribution in the Netherlands (with and without pension savings) Full distribution Top Bottom Gini Share Share Positive cumulative coëfficiënt top 1% top 10% wealth from Private wealth % 61% 60 percentile Idem + pension savings % 50% 35 percentile Source: calculations based on CBS IPO and CBS micro data on pensioenaanspraken, -uitkeringen en vermogen Mitigation: built-up pension rights mitigate wealth inequality. Total wealth inequality in the Netherlands is smaller compared to inequality of private wealth (as reported by both CBS and Van Bavel / recent WRR-study).

17 Growing wealth concentration in the Netherlands? Private wealth distribution; share top percentile, (Pikkety s Dominant Class) Top 1% - Adults Top 1% - Housholds y = -0,366x R² = 0, y = -0,035x + 92 R² = 0, Source: Roine & Waldenström (2014); own calculations

18 Growing wealth concentration ? Top wealth percentiles: share of total private wealth Source: Roine & Waldenström (2014); own calculations

19 Accumulation of inequality (1) The accumulation of both income and wealth inequality is worrisome. However, inequality is less a problem when people with high incomes hold low wealth, while others with low incomes hold lots of wealth. Empirical test for the Netherlands: distribute wealth to percentiles of income (DPI). Result: less inequality of wealth. Top 1% households (in terms of income) holds 9% of wealth and top 10% owns about 31% of total wealth.

20 Accumulation of inequality (2) Cumulative shares of wealth over the distribution of income, with and without pension savings 100% 80% wealth including pension savings private wealth 60% 40% 20% 0% 0% 20% 40% 60% 80% 100% precentiles of households (DPI) Source: calculations based on CBS IPO and CBS microdata on Pensioenaanspraken, - uitkeringen en vermogen

21 Accumulation of inequality (3) Both curves intersect. Reason: supplementary pension savings are particularly relevant for middle income groups. Composition of top 10% households changes dramatically: Now employees and civil servants (53%) and self-employed and DGA (36%), while barely no pensioners (7%). Low tail of the distribution: students (30%), while less employees and civil servants (19%).

22 Accumulation of inequality (final) So, presented like this - inequality is less skewed. Some groups have debts or low wealth, but rather high incomes (employees and civil servants). While other groups, with high wealth, have rather low incomes (pensioners). Self-employed / DGA a special group: overrepresented in both lowest and highest income deciles (both tails). However, self-employed / DGA move up in the distribution of wealth appear more frequent in higher decilles of wealth. Especially in top 10% wealth distribution: selfemployed / DGA (= 2½ % of all households) hold 21% of total private wealth.

23 An international perspective (1) - Unfortunately, comparative data are rare / poor quality. - Inequality private wealth based on recent IMF-study. NL belowaverage; USA far above-average. - Data Luxembourg Wealth Study: scatter of inequality of wealth. Calculation based on correlation wealth and income inequality (poor).

24 Another international perspective (2) Unfortunately, comparative data are rare / poor quality. SHARE-data - used by Van Bavel Top rank Netherlands! However N=1.846 ; population aged 50 years and above Source: Skopek, Buchholz & Blossfeld (2011)

25 A third international perspective (3) Distribution financial wealth 2013 (Pension at a Glance) Source: Pension at A Glance 2013 (Figure 2.2.2), and authors calculations based on data from first wave Eurosystem Household Finance and Consumption Survey in 2013.

26 Corresponding Gini s (Piketty's synthetic inequality index) Source: Pension at A Glance 2013 (Figure 2.2.2), and authors calculations based on data from first wave Eurosystem Household Finance and Consumption Survey in 2013.

27 Composition of financial wealth, % Other assets 80% Voluntary pensions/ life insurance Money owed to the hh Managed accounts 60% Shares Private business 40% Bonds Mutual funds 20% Deposit 0% Fra Spain Belgium Ger Lux NL Ita Austria Fin Slov Port Greece Slovak R. Source: Pension at A Glance 2013 (Figure 2.2.2), and authors calculations based on data from first wave Eurosystem Household Finance and Consumption Survey in 2013.

28 Piketty and The Netherlands Data Dutch distribution of private wealth in line with data Piketty for Continental Europe. - However, pension savings blur the picture. Including pension saving The Netherlands is a look-alike of Nordic Countries. Notes: - Are the Dutch an outlier or did Piketty miss something? Piketty does not present any negative private wealth (debts) for bottom 50% households for any country (while there is negative cumulative private wealth in the Netherlands uptill 60 st percentile). - Calculated Gini by Piketty based on 3 data points of the wealth distribution (share bottom 50%, middle 40% and upper 10%) this Gini as an indicator of global inequality is rather poor; see Technical Appendix Piketty.

29 Piketty and Netherlands TABLE 7.2 Inequality of capital ownership across time and space Share of different groups in total capital Top 10% "upper class" Including top 1% ("dominant class") Including next 9% ("well-t-do-class") The middle 40% ("middle class") The bottom 50% ("lower class") Corresponding Gini (synthetic inequality index) Low inequality (never observed: ideal society?) Medium inequality (= Scandinavia, 1970s-1980s) Mediumhigh inequality (= Europe 2010) High inequality (= US 2010) Very high inequality (= Europe 1910) Netherlands 2010 Caminada et al (2014) Idem, including pension savings 30% 50% 60% 70% 90% 61% 50% 10% 20% 25% 35% 50% 25% 17% 20% 30% 35% 35% 40% 37% 33% 45% 40% 35% 25% 5% 41% 46% 25% 10% 5% 5% 5% -2% 4% 0,33 0,58 0,67 0,73 0,85 0,742 0,626 Source: Piketty (2014, p. 248) and calculations based on CBS IPO and CBS microdata on pensioenaanspraken, -uitkeringen en vermogen

30 Summing-up - Unfortunately, comparative data on wealth inequality are rare / poor quality. - Dutch distribution of wealth in line with data Piketty for Continental Europe (private wealth) and / or Nordic Countries (private wealth + pension savings). - How to deal with negative wealth (debts) not sure about Piketty s analysis on this

31 Conclusion The Netherlands Inequality of private wealth > Inequality of income Inequality of wealth drops when pension saving is taken into account too Inequality drops as result of poor correlation inequality of wealth versus inequality of income across socio-economic groups Over time: top wealth deciles declined dramatically International perspective Comparative data are rare / poor quality. Netherlands is a look-alike of Nordic Countries; both UK and USA are much more unequal. To Do List: Effect Pensioen BV + deposits mortgages (spaar- en levenhypotheken) Political Economy: is Netherlands Piketty-proof?

32 Further Reading 1. Alvaredo, Atkinson, Piketty and Saez (2013), The top 1 percent in international and historical perspective, Journal of Economic Perspectives 27(3), Atkinson and Morelli (2014), Chartbook of Economic Inequality, 3. Atkinson, Piketty and Saez (2011), Top Incomes in the Long Run of History, Journal of Economic Literature 49(1), Van Bavel en Salverda (2014), Vermogensongelijkheid in Nederland, ESB 99(4688), Been, Knoef, Caminada en Goudswaard (2014), Drie scenario s voor de pensioenopbouw in Nederland, Pensioen Magazine, 19(4), Caminada, Been, Goudswaard en De Graaf-Zijl (2014), De ontwikkeling van inkomensongelijkheid en inkomensherverdeling in Nederland , RM 14.02, Leiden University, 46 p. 7. Caminada, Goudswaard en Knoef (2014), Vermogen in Nederland gelijker verdeeld sinds negentiende eeuw, Me Judice, 27 juni IMF (2014), Fiscal policy and income inequality, IMF Staff Policy Paper, January 23, Knoef, Been, Alessie, Caminada, Goudswaard en Kalwij (2013), Measuring retirement savings adequacy: a multi-pillar approach in the Netherlands, Netspar Design Paper Morelli, Smeeding and Thompson (2014), Post-1970 Trends in Within-Country Inequality and Poverty: Rich and Middle Income Countries Institute for Research on Poverty Discussion Paper, no Piketty (2014), Capital in the Twenty-First Century, Cambridge: The Belknap Press of Harvard University Press. 12. Pouwels-Urlings, en Van den Brakel (2014), Vermogensongelijkheid tijdens de crisis, ESB 99(4688), Roine, and Waldenström (2014), Long-Run Trends in the Distribution of Income and Wealth, IZA DP Salverda (2013), Inkomen, herverdeling en huishoudvorming : 35 jaar ongelijkheidsgroei in Nederland, TPEdigitaal 7(1), WRR (2014), Hoe ongelijk is Nederland? Een verkenning van de ontwikkeling en gevolgen van economische ongelijkheid, WRR-Verkenning nr. 28, Kremer, Bovens, Schrijvers en Went (red.), Amsterdam: Amsterdam University Press.