23. For all the countries for which we have data on the composition of income at different levels, comparable to the data presented for France and the United States in the previous chapter (see Figures 8.3–4 and 8.9–10), we find the same reality.
24. See Supplemental Figure S9.6, available online, for the same graph using annual series. Series for other countries are similar and available online.
25. Figure 9.8 simply shows the arithmetic mean of the four European countries included in Figure 9.7. These four countries are quite representative of European diversity, and the curve would not look very different if we included other northern and southern European countries for which data are available, or if we weighted the average by the national income of each country. See the online technical appendix.
26. Interested readers may wish to consult the case studies of twenty-three countries that Anthony Atkinson and I published in two volumes in 2007 and 2010: Top Incomes over the Twentieth Century: A Contrast Between Continental European and English-Speaking Countries (Oxford: Oxford University Press, 2007), and Top Incomes: A Global Perspective (Oxford: Oxford University Press, 2010).
27. In China, strictly speaking, there was no income tax before 1980, so there is no way to study the evolution of income inequality for the entire twentieth century (the series presented here began in 1986). For Colombia, the tax records I have collected thus far go back only to 1993, but the income tax existed well before that, and it is entirely possible that we will ultimately find the earlier data (the archives of historical tax records are fairly poorly organized in a number of South American countries).
28. The list of ongoing projects is available on the WTID site.
29. When digital tax files are accessible, computerization naturally leads to improvement in our sources of information. But when the files are closed or poorly indexed (which often happens), then the absence of statistical data in paper form can impair our “historical memory” of income tax data.
30. The closer the income tax is to being purely proportional, the less the need for detailed information about different income brackets. In Part Four I will discuss changes in taxation itself. The point for now is that such changes have an influence on our observational instruments.
31. The information for the year 2010 in Figure 9.9 is based on very imperfect data concerning the remuneration of firm managers and should be taken as a first approximation. See the online technical appendix.
32. See Abhijit Banerjee and Thomas Piketty, “Top Indian Incomes, 1922–2000,” World Bank Economic Review 19, no. 1 (May 2005): 1–20. See also A. Banerjee and T. Piketty, “Are the Rich Growing Richer? Evidence from Indian Tax Data,” in Angus Deaton and Valerie Kozel, eds., Data and Dogma: The Great Indian Poverty Debate (New Delhi: Macmillan India Ltd., 2005): 598–611. The “black hole” itself represents nearly half of total growth in India between 1990 and 2000: per capita income increased by nearly 4 percent a year according to national accounts data but by only 2 percent according to household survey data. The issue is therefore important.
33. See the online technical appendix.
34. In fact, the principal—and on the whole rather obvious—result of economic models of optimal experimentation in the presence of imperfect information is that it is never in the interest of the agents (in this case the firm) to seek complete information as long as experimentation is costly (and it is costly to try out a number of CFOs before making a final choice), especially when information has a public value greater than its private value to the agent. See the online technical appendix for bibliographic references.
35. See Marianne Bertrand and Sendhil Mullainathan, “Are CEOs Rewarded for Luck? The Ones without Principals Are,” Quarterly Journal of Economics 116, no. 3 (2001): 901–932. See also Lucian Bebchuk and Jesse Fried, Pay without Performance (Cambridge, MA: Harvard University Press, 2004).
10. Inequality of Capital Ownership
1. In particular, all the data on the composition of income by level of overall income corroborate this finding. The same is true of series beginning in the late nineteenth century (for Germany, Japan, and several Nordic countries). The available data for the poor and emergent countries are more fragmentary but suggest a similar pattern. See the online technical appendix.
2. See esp. Table 7.2.
3. The parallel series available for other countries give consistent results. For example, the evolutions we observe in Denmark and Norway since the nineteenth century are very close to the trajectory of Sweden. The data for Japan and Germany suggest a dynamic similar to that of France. A recent study of Australia yields results consistent with those obtained for the United States. See the online technical appendix.
4. For a precise description of the various sources used, see Thomas Piketty, “On the Long-Run Evolution of Inheritance: France 1820–2050,” Paris School of Economics, 2010 (a summary version appeared in the Quarterly Journal of Economics, 126, no. 3 [August 2011]: 1071–131). The individual statements were collected with Gilles Postel-Vinay and Jean-Laurent Rosenthal from Parisian archives. We also used statements previously collected for all of France under the auspices of the Enquête TRA project, thanks to the efforts of numerous other researchers, in particular Jérôme Bourdieu, Lionel Kesztenbaum, and Akiko Suwa-Eisenmann. See the online technical appendix.
5. For a detailed analysis of these results, see Thomas Piketty, Gilles Postel-Vinay, and Jean-Laurent Rosenthal, “Wealth Concentration in a Developing Economy: Paris and France, 1807–1994,” American Economic Review 96, no. 1 (February 2006): 236–56. The version presented here is an updated version of these series. Figure 10.1 and subsequent figures focus on means by decade in order to focus attention on long-term evolutions. All the annual series are available online.
6. The shares of each decile and centile indicated in Figures 10.1 and following were calculated as percentages of total private wealth. But since private fortunes made up nearly all of national wealth, this makes little difference.
7. This method, called the “mortality multiplier,” involves a reweighting of each observation by the inverse of the mortality rate in each age cohort: a person who dies at age forty represents more living individuals than a person who dies at eighty (one must also take into account mortality differentials by level of wealth). The method was developed by French and British economists and statisticians (especially B. Mallet, M. J. Séaillès, H. C. Strutt, and J. C. Stamp) in 1900–1910 and used in all subsequent historical research. When we have data from wealth surveys or annual wealth taxes on the living (as in the Nordic countries, where such taxes have existed since the beginning of the twentieth century, or in France, with data from the wealth tax of 1990–2010), we can check the validity of this method and refine our hypotheses concerning mortality differentials. On these methodological issues, see the online technical appendix.
8. See the online technical appendix. This percentage probably exceeded 50 prior to 1789.
9. On this question, see also Jérôme Bourdieu, Gilles Postel-Vinay, and Akiko Suwa-Eisenmann, “Pourquoi la richesse ne s’est-elle pas diffusée avec la croissance? Le degré zéro de l’inégalité et son évolution en France: 1800–1940,” Histoire et mesure 18, 1/2 (2003): 147–98.
10. See for example the interesting data on the distribution of land in Roger S. Bagnall, “Landholding in Late Roman Egypt: The Distribution of Wealth,” Journal of Roman Studies 82 (November 1992): 128–49. Other work of this type yields similar results. See the online technical appendix.
11. Bibliographic and technical details can be found in the online technical appendix.
12. Some estimates find that the top centile in the United States as a whole owned less than 15 percent of total national wealth around 1800, but that finding depends entirely on the decision to focus on free individuals only, which is obviously a controversial choice. The estimates that are reported here refer to the entire population (free and unfree). See the online technical appendix.
13. See Will
ford I. King, The Wealth and Income of the People of the United States (New York: MacMillan, 1915). King, a professor of statistics and economics at the University of Wisconsin, relied on imperfect but suggestive data from several US states and compared them with European estimates, mainly based on Prussian tax statistics. He found the differences to be much smaller than he initially imagined.
14. These levels, based on official Federal Reserve Bank surveys, may be somewhat low (given the difficult of estimate large fortunes), and the top centile’s share may have reached 40 percent. See the online technical appendix.
15. The European average in Figure 10.6 was calculated from the figures for France, Britain, and Sweden (which appear to have been representative). See the online technical appendix.
16. For land rent, the earliest data available for antiquity and the Middle Ages suggest annual returns of around 5 percent. For interest on loans, we often find rates above 5 percent in earlier periods, typically on the order of 6–8 percent, even for loans with real estate collateral. See, for example, the data collected by S. Homer and R. Sylla, A History of Interest Rates (New Brunswick, NJ: Rutgers University Press, 1996).
17. If the return on capital were greater than the time preference, everyone would prefer to reduce present consumption and save more (so that the capital stock would grow indefinitely, until the return on capital fell to the rate of time preference). In the opposite case, everyone would sell a portion of her capital stock in order to increase present consumption (and the capital stock would decrease until the return on capital rose to equal θ). In either case we are left with r = θ.
18. The infinite horizon model implies an infinite elasticity of saving—and thus of the supply of capital—in the long run. It therefore assumes that tax policy cannot affect the supply of capital.
19. Formally, in the standard infinite horizon model, the equilibrium rate of return is given by the formula r = θ + γ × g (where θ is the rate of time preference and γ measures the concavity of the utility function. It is generally estimated that γ lies between 1.5 and 2.5. For example, if θ = 5% and γ = 2, then r = 5% for g = 0% and r = 9% for g = 2%, so that the gap r − g rises from 5% to 7% when growth increases from 0% to 2%. See the online technical appendix.
20. A third for parents with two children and a half for those with only one child.
21. Note that in 1807 Napoleon introduced the majorat for his imperial nobility. This allowed an increased share of certain landed estates linked to titles of nobility to go the eldest males. Only a few thousand individuals were concerned. Moreover, Charles X tried to restore substitutions héréditaires for his own nobility in 1826. These throwbacks to the Ancien Régime affected only a small part of the population and were in any case definitively abolished in 1848.
22. See Jens Beckert, Inherited Wealth (Princeton: Princeton University Press, 2008).
23. In theory, women enjoyed the same rights as men when it came to dividing estates, according to the Civil Code. But a wife was not free to dispose of her property as she saw fit: this type of asymmetry, in regard to opening and managing bank accounts, selling property, etc., did not totally disappear until the 1970s. In practice, therefore, the new law favored (male) heads of families: younger sons acquired the same rights as elder sons, but daughters were left behind. See the online technical appendix.
24. See Pierre Rosanvallon, La société des égaux (Paris: Le Seuil, 2011), 50.
25. The equation relating the Pareto coefficient to r − g is given in the online technical appendix.
26. Clearly, this does not imply that the r > g logic is necessarily the only force at work. The model and related calculations are obviously a simplification of reality and do not claim to identify the precise role played by each mechanism (various contradictory forces may balance each other). It does show, however, that the r > g logic is by itself sufficient to explain the observed level of concentration. See the online technical appendix.
27. The Swedish case is interesting, because it combines several contradictory forces that seem to balance one another out: first, the capital/income ratio was lower than in France or Britain in the nineteenth and early twentieth centuries (the value of land was lower, and domestic capital was partly owned by foreigners—in this respect, Sweden was similar to Canada), and second, primogeniture was in force until the end of the nineteenth century, and some entails on large dynastic fortunes in Sweden persist to this day. In the end, wealth was less concentrated in Sweden in 1900–1910 than in Britain and close the French level. See Figures 10.1–4 and the work of Henry Ohlsson, Jesper Roine, and Daniel Waldenström.
28. Recall that the estimates of the “pure” return on capital indicated in Figure 10.10 should be regarded as minimums and that the average observed return rose as high as 6–7 percent in Britain and France in the nineteenth century (see Chapter 6).
29. Fortunately, Duchesse and her kittens ultimately meet Thomas O’Malley, an alley cat whose earthy ways they find more amusing than art classes (a little like Jack Dawson, who meets young Rose on the deck of Titanic two years later, in 1912).
30. For an analysis of Pareto’s data, see my Les hauts revenus en France au 20e siècle: Inégalités et redistribution 1901–1998 (Paris: Grasset, 2001), 527–30.
31. For details, see the online technical appendix.
32. The simplest way to think of Pareto coefficients is to use what are sometimes called “inverted coefficients,” which in practice vary from 1.5 to 3.5. An inverted coefficient of 1.5 means that average income or wealth above a certain threshold is equal to 1.5 times the threshold level (individuals with more than a million euros of property own on average 1.5 million euros’ worth, etc., for any given threshold), which is a relatively low level of inequality (there are few very wealthy individuals). By contrast, an inverted coefficient of 3.5 represents a very high level of inequality. Another way to think about power functions is the following: a coefficient around 1.5 means that the top 0.1 percent are barely twice as rich on average as the top 1 percent (and similarly for the top 0.01 percent within the top 0.1 percent, etc.). By contrast, a coefficient around 3.5 means that they are more than five times as rich. All of this is explained in the online technical appendix. For graphs representing the historical evolution of the Pareto coefficients throughout the twentieth century for the various countries in the WTID, see Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez, “Top Incomes in the Long Run of History,” Journal of Economic Literature 49, no. 1 (2011): 3–71.
33. That is, they had something like an income of 2–2.5 million euros a year in a society where the average wage was 24,000 euros a year (2,000 a month). See the online technical appendix.
34. Paris real estate (which at the time consisted mainly of wholly owned buildings rather than apartments) was beyond the reach of the modestly wealthy, who were the only ones for whom provincial real estate, including especially farmland, still mattered. César Birotteau, who rejected his wife’s advice to invest in some good farms near Chinon on the grounds that this was too staid an investment, saw himself as bold and forward-looking—unfortunately for him. See Table S10.4 (available online) for a more detailed version of Table 10.1 showing the very rapid growth of foreign assets between 1872 and 1912, especially in the largest portfolios.
35. The national solidarity tax, instituted by the ordinance of August 15, 1945, was an exceptional levy on all wealth, estimated as of June 4, 1945, at rates up to 20 percent for the largest fortunes, together with an exceptional levy on all nominal increases of wealth between 1940 and 1945, at rates up to 100 percent for the largest increases. In practice, in view of the very high inflation rate during the war (prices more than tripled between 1940 and 1945), this levy amounted to a 100 percent tax on anyone who did not sufficiently suffer during the war, as André Philip, a Socialist member of General de Gaulle’s provisional government, admitted, explaining that it was inevitable that the tax should weigh equally on “those who did not become wealthier and perhap
s even those who, in monetary terms, became poorer, in the sense that their fortunes did not increase to the same degree as the general increase in prices, but who were able to preserve their overall fortunes at a time when so many people in France lost everything.” See André Siegfried, L’Année Politique 1944–1945 (Paris: Editions du Grand Siècle, 1946), 159.
36. See the online technical appendix.
37. See in particular my Les hauts revenus en France, 396–403. See also Piketty, “Income Inequality in France, 1901–1998,” Journal of Political Economy 111, no. 5 (2003): 1004–42.
38. See the simulations by Fabien Dell, “L’allemagne inégale: Inégalités de revenus et de patrimoine en Allemagne, dynamique d’accumulation du capital et taxation de Bismarck à Schröder 1870–2005,” Ph.D. thesis, Paris School of Economics, 2008. See also F. Dell, “Top Incomes in Germany and Switzerland Over over the Twentieth Century,” Journal of the European Economic Association 3, no. 2/3 (2005): 412–21.
11. Merit and Inheritance in the Long Run
1. I exclude theft and pillage, although these are not totally without historical significance. Private appropriation of natural resources is discussed in the next chapter.
2. In order to focus on long-term evolutions, I use averages by decade here. The annual series are available online. For more detail on techniques and methods, see Thomas Piketty, “On the Long-Run Evolution of Inheritance: France 1820–2050,” Paris School of Economics, 2010; a summary version was published in the Quarterly Journal of Economics 126, no. 3 (August 2011): 1071–131. These documents are available in the online technical appendix.
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