Rich and ever richer? Differential returns across socioeconomic groups

This paper estimates rates of return across the gross wealth distribution in eight European countries. Like differential saving rates, differential rates of return matter for post Keynesian theory, because they impact the income and wealth distribution and add an explosive element to growth models....

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Bibliographic Details
Published in:Journal of post Keynesian economics 2021-04, Vol.44 (2), p.283-301
Main Authors: Ederer, Stefan, Mayerhofer, Maximilian, Rehm, Miriam
Format: Article
Language:English
Subjects:
Assets
Differential rate of return
distribution
Economic theory
Growth models
Inequality
Keynesian theory
Owners
Rates of return
wealth
Wealth distribution
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Summary:This paper estimates rates of return across the gross wealth distribution in eight European countries. Like differential saving rates, differential rates of return matter for post Keynesian theory, because they impact the income and wealth distribution and add an explosive element to growth models. We show that differential rates of return matter empirically by merging data on household balance sheets with long-run returns for individual asset categories. We find that (a) the composition of wealth differentiates three socioeconomic groups: 30% are asset-poor, 65% are middle-class home owners, and the top 5% are business-owning capitalists; (b) rates of return rise across all groups; and (c) rates of return broadly follow a log-shaped function across the distribution, where inequality in the lower half of the distribution is higher than in the upper half. If socioeconomic groups are collapsed into the bottom 95% workers and top 5% capitalists, then rates of return are 5.6% for the former and 7.2% for the latter.
ISSN:0160-3477
1557-7821
DOI:10.1080/01603477.2020.1794902