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Comparing wealth distribution across rich countries: First results from the
Luxembourg Wealth Study
Eva SierminskaLuxembourg Wealth Study
Andrea BrandoliniBanca d’Italia, Economic Research Department
and Luxembourg Wealth Study
Timothy M. SmeedingSyracuse University and Luxembourg Wealth Study
The Luxembourg Wealth Study:Enhancing Comparative Research on Household Finance
Banca d’Italia, Roma, 5-7 July 2007
OutlineOutline
LIS and LWSLIS and LWS
Goals and HistoryGoals and History
Countries and Countries and datasetsdatasets
Issues in database Issues in database constructionconstruction
Preliminary resultsPreliminary results
Lessons from LWSLessons from LWS
LWS GOALSLWS GOALSWHERE DO WE STAND?WHERE DO WE STAND?
1.1. Built up within the Luxembourg Income Study (LIS) – Built up within the Luxembourg Income Study (LIS) – www.lisproject.org following the same model. following the same model.
2.2. Establish a network of experts of micro-data on household net Establish a network of experts of micro-data on household net worth to share accumulated knowledge and best practicesworth to share accumulated knowledge and best practices
3.3. Construct a comparable database containing wealth variables Construct a comparable database containing wealth variables based on existing datasets to enable cross-country based on existing datasets to enable cross-country comparisons on household net worth, portfolio composition comparisons on household net worth, portfolio composition and wealth distribution (including liquid assets, debts and and wealth distribution (including liquid assets, debts and other holdings)other holdings)
4.4. Produce guidelines for data producers – similar to what has Produce guidelines for data producers – similar to what has been done for income distribution statistics through LIS with been done for income distribution statistics through LIS with the final Report of the Canberra Groupthe final Report of the Canberra Group
LWS HISTORY (1)LWS HISTORY (1)
August 2002 – 27August 2002 – 27thth IARIW Conference, Stockholm IARIW Conference, Stockholm– Wealth inequality trends-wealth comparability lagging income comparabilityWealth inequality trends-wealth comparability lagging income comparability
July 2003 – LIS headquarters, Luxembourg July 2003 – LIS headquarters, Luxembourg – Meeting of experts on wealth and data collection decided LWS worthwhile Meeting of experts on wealth and data collection decided LWS worthwhile
projectproject
October 2003 – Levy Economics Institute, New YorkOctober 2003 – Levy Economics Institute, New York– Further meeting of experts, update of project funding, decision to hire Further meeting of experts, update of project funding, decision to hire
coordinatorcoordinator
March 2004 – LIS headquarters, Luxembourg March 2004 – LIS headquarters, Luxembourg – Official launch of LWSOfficial launch of LWS
January 2005 – Bank of Italy, PerugiaJanuary 2005 – Bank of Italy, Perugia– Workshop on methodological issuesWorkshop on methodological issues
July 2005 – LIS headquarters, Luxembourg July 2005 – LIS headquarters, Luxembourg – Biennial meeting of LIS asbl: LWS fully integrated in LIS activities after Biennial meeting of LIS asbl: LWS fully integrated in LIS activities after
completion of first stage of the projectcompletion of first stage of the project
LIS HISTORY (2)LIS HISTORY (2)
June 2006 – LWS database, Beta VersionJune 2006 – LWS database, Beta Version– Release to project participantsRelease to project participants
August 2006 – August 2006 – 29th IARIW Conference, Joensuu, Finland29th IARIW Conference, Joensuu, Finland– Presentation of LWS data and methodologyPresentation of LWS data and methodology
14-15 December 2006 – LIS headquarters, Luxembourg 14-15 December 2006 – LIS headquarters, Luxembourg – Workshop to discuss first comparative paper plus country Workshop to discuss first comparative paper plus country
papers comparing Beta version with original national sources papers comparing Beta version with original national sources in order to prepare final documentationin order to prepare final documentation
5-7 July 2007 – Final conference –Rome, Italy5-7 July 2007 – Final conference –Rome, Italy– Presentation of the LWS project, papers on methodological Presentation of the LWS project, papers on methodological
issues and substantive issuesissues and substantive issues
2007 – LWS database, Alpha version2007 – LWS database, Alpha version– Release to all LIS usersRelease to all LIS users
LIS and LWSLIS and LWS
LWS Builds on LIS as a microdata LWS Builds on LIS as a microdata
harmonization and research projectharmonization and research project
LIS (Luxembourg Income Study)LIS (Luxembourg Income Study)
23 Years; 31 countries; 160 datasets 23 Years; 31 countries; 160 datasets
website: website: www.lisproject.org
LWS (Luxembourg Wealth Study)LWS (Luxembourg Wealth Study)
3 Years; 10 countries; 12 datasets 3 Years; 10 countries; 12 datasets
website: website: www.lisproject.org/lws.htm
AustriaAustria
CanadaCanada
CyprusCyprus
FinlandFinland
GermanyGermany
ItalyItaly
NorwayNorway
SwedenSweden
United KingdomUnited Kingdom
United StatesUnited States
Survey of Household Financial WealthSurvey of Household Financial Wealth
Survey of Financial SecuritySurvey of Financial Security
Survey of Consumer FinancesSurvey of Consumer Finances
Household Wealth SurveyHousehold Wealth Survey
Socio-Economic Panel StudySocio-Economic Panel Study
Survey of Household Income and WealthSurvey of Household Income and Wealth
Income and Wealth SurveyIncome and Wealth Survey
Wealth SurveyWealth Survey
British Household Panel StudyBritish Household Panel Study
Panel Study of Income DynamicsPanel Study of Income DynamicsSurvey of Consumer FinancesSurvey of Consumer Finances
20042004
19991999
1999-1999-20022002
1994-19981994-1998
20022002
1995-1998-1995-1998-20022002
1997-1999-1997-1999-20022002
1997-1999-1997-1999-20022002
20002000
1999-1999-20012001 1998-1998-20012001
LWS COUNTRIES AND DATASETSLWS COUNTRIES AND DATASETS
Underlined dataset are included in Beta version
Varied group of participants
ISSUES IN LWS CONSTRUCTIONISSUES IN LWS CONSTRUCTION
Surveys differSurveys differ
PurposePurpose: some designed to collect wealth data (CA, IT, US-SCF), : some designed to collect wealth data (CA, IT, US-SCF), some supplemented with special modules (GE, UK, US-PSID)some supplemented with special modules (GE, UK, US-PSID)
SourceSource: mostly sample surveys, but supplemented with : mostly sample surveys, but supplemented with administrative data in Nordic countriesadministrative data in Nordic countries
Sampling frameSampling frame: some over-sample the rich: some over-sample the rich
Unit of analysisUnit of analysis: generally household, but individual in GE and : generally household, but individual in GE and UK, family in US and CAUK, family in US and CA
Number of wealth itemsNumber of wealth items: from 7 in UK to 30+ in IT, NW, US-SCF: from 7 in UK to 30+ in IT, NW, US-SCF
Perfect comparability cannot be achieved
Define basic wealth concept
IDEAL LWS VARIABLE STRUCTUREIDEAL LWS VARIABLE STRUCTURE
DemographicsDemographicsIncome and consumption aggregatesIncome and consumption aggregatesWealth variables Wealth variables -(household-individual-family level)-(household-individual-family level)
• Non-financial assetsNon-financial assets• Financial AssetsFinancial Assets• LiabilitiesLiabilities
Behavioral variablesBehavioral variables• Bequest motivationBequest motivation• Inheritance expectationsInheritance expectations• Motives for savingsMotives for savings• Intervivos transfersIntervivos transfers• Risk attitudeRisk attitude• Income and health uncertainty/riskIncome and health uncertainty/risk• Expectations (fertility; income support from the state)Expectations (fertility; income support from the state)
LWS Wealth Variables (1)LWS Wealth Variables (1)
FINANCIAL ASSETSFINANCIAL ASSETS
Deposit Accounts: Transaction, Savings and CDsDeposit Accounts: Transaction, Savings and CDs DADA
Total Bonds: Savings and Other BondsTotal Bonds: Savings and Other Bonds TBTB
StocksStocks STST
Mutual Funds and other investment fundsMutual Funds and other investment funds TMTM
Life insuranceLife insurance LILI
Other investment./ financial assets(non-pen)Other investment./ financial assets(non-pen) OFAOFA
Pension AssetsPension Assets PAPA
LWS Wealth Variables (3)LWS Wealth Variables (3)
NON-FINANCIAL ASSETSNON-FINANCIAL ASSETS
Principal residencePrincipal residence PRPR
Investment real estateInvestment real estate IRIR
Business EquityBusiness Equity BEBE
VehiclesVehicles VHVH
Durables/CollectiblesDurables/Collectibles DR/CLDR/CL
Other non-financial assetsOther non-financial assets ONFONF
LIABILITIESLIABILITIES
Total LiabilitiesTotal Liabilities TD TD
Total Home secured debtTotal Home secured debt HSDHSD
Principal residence mortgagePrincipal residence mortgage MGMG
Other property mortgageOther property mortgage OMGOMG
Other home secured debt Other home secured debt (including line of credit)(including line of credit) OHSDOHSD
Vehicle loansVehicle loans VLVL
Total Installment debt Total Installment debt (inc. credit card bal)(inc. credit card bal) ILIL
Educational loansEducational loansELEL
Other loans from financial institutionsOther loans from financial institutions OLOL
Informal debtInformal debt IDID
LWS Wealth Variables (5)LWS Wealth Variables (5)
Wealth Summary VariablesWealth Summary Variables
Risky assets : Risky assets : RA =TB+ST+TMRA =TB+ST+TMTotal assets: Total assets: TA=sum of all assetsTA=sum of all assetsHome secured debt: Home secured debt: HSD=MG+OMG+OHSDHSD=MG+OMG+OHSDNon-housing debt:Non-housing debt: NHD=TD-HSDNHD=TD-HSD
Total financial assets: Total financial assets: TFA1=DA+ST+TB+TMTFA1=DA+ST+TB+TMTotal non-financial assets:Total non-financial assets: TNF1=PR+IRTNF1=PR+IR
TNF2=PR+IR+BATNF2=PR+IR+BATotal debt:Total debt: TD=HSD+VL+IL+EL+OL+IDTD=HSD+VL+IL+EL+OL+ID
Net worth:Net worth: NW1=TFA1+TNF1-TDNW1=TFA1+TNF1-TDNW2=TFA1+TNF2-TDNW2=TFA1+TNF2-TDNW = (sum of all assets)-(sum of all debts)NW = (sum of all assets)-(sum of all debts)
Other Wealth VariablesOther Wealth Variables
Miscellaneous net worth: Miscellaneous net worth: OWLOWL
Inheritance received:Inheritance received: INH1-INH3INH1-INH3
Year of inheritance: Year of inheritance: YRINH1-YRINH3YRINH1-YRINH3
Remaining inheritance:Remaining inheritance: INH4INH4
Tenure:Tenure: OWN OWN
Type of dwelling:Type of dwelling: DWELLDWELL
Own business:Own business: BUSBUS
Special variables: Special variables: IRnet, Vhnet, FlagsIRnet, Vhnet, Flags
Revision since Revision since LWS Technical Conference:LWS Technical Conference:
– Imputations for Germany (SOEP)Imputations for Germany (SOEP)
– Working on inclusion of behavioral variables in LWSWorking on inclusion of behavioral variables in LWS
– Minor data reclassificationMinor data reclassification
– Exploring possibility of including pensions in SwedenExploring possibility of including pensions in Sweden
- Addition of variables to reflect national wealth - Addition of variables to reflect national wealth conceptsconcepts
Preliminary ResultsPreliminary Results
Some preliminary results for a subset of countries participating Some preliminary results for a subset of countries participating in the projectin the project
Proportion of missing values in major components of net worth.
Canada Cyprus Finland Germany Italy Norway Sweden United
KingdomUnited States
United
States
SCF PSID
Net worth - 61 - - 0 - - 14 - 5
Total Financial Assets - 21 - --
-
- - - 9 - -
Total Non-Financial Assets - 25 - - 0 - - 2 - 2
Total Debt - 43 - - - - 7 - 3
sample size 15,933 895 3,893 63,460 8,011 22,870 17,954 4,867 22,210 7,406
The cost of cross-national comparability:The cost of cross-national comparability:reconciling LWS and national conceptsreconciling LWS and national concepts
(averages in thousands of national currencies)(averages in thousands of national currencies)
VariableVariable CanadaCanada FinlandFinland ItalyItaly SwedenSweden United United StatesStates
1999 1999 19981998 20022002 20022002 20012001
LWS net worthLWS net worth 102.5102.5 69.369.3 154.2154.2 537.8537.8 213.1213.1
+ pension assets+ pension assets 83.083.0 0.60.6 – – – – 74.474.4
+ other financial assets+ other financial assets 2.52.5 1.61.6 0.30.3 24.524.5 13.113.1
+ business equity+ business equity 26.926.9 – – 23.523.5 80.0 (1)80.0 (1) 74.774.7
+ other non-fin. assets+ other non-fin. assets 28.528.5 6.56.5 24.424.4 17.817.8 20.620.6
LWS adjusted net worthLWS adjusted net worth 243.4243.4 78.0 (2)78.0 (2) 202.4202.4 660.1660.1 395.9395.9
National source net worthNational source net worth 249.3249.3 79.879.8 204.4204.4 660.0660.0 395.5395.5
Source: LWS database, β-version and country sources. Household weights are used. (1) Business assets. (2) It does not include other debts.
Per capita household net worth: Per capita household net worth: LWS and national balance sheetsLWS and national balance sheets
Source: LWS database, β-version and national sources.
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Canada Cyprus Finland Germany Italy Norway Sweden UnitedKingdom
UnitedStatesPSID
UnitedStatesSCF
LWS database
National balance sheets
Eu
ros
Mean net worth
0
50,000
100,000
150,000
200,000
250,000
Sw
eden
Fin
land
Can
ada
Ger
man
y
UK
US
(P
SID
)
Ital
y
US
(S
CF
)
Median net worth
0
50,000
100,000
150,000
200,000
250,000
Sw
eden
Ger
man
y
Can
ada
US
(P
SID
)
US
(S
CF
)
Fin
land UK
Ital
y
Mean income
0
10,000
20,000
30,000
40,000
Fin
land
Ital
y
Sw
eden
Ger
man
y
Can
ada
UK
US
(S
CF
)
US
(P
SID
)
Median income
0
10,000
20,000
30,000
40,000
Ital
y
Fin
land
Sw
eden
Ger
man
y
UK
Can
ada
US
(S
CF
)
US
(P
SID
)
Source: LWS database, β-version
Means and medians
(2002 PPP dollars)
Household asset participation (per cent)Household asset participation (per cent)
Wealth components AustriaCanada Cyprus Finland Germany (1)Italy Norway Sweden United Kingdom
United States P
United States S
2004 1999 2002 1998 2002 2002 2002 2002 2000 2001 2001
Non-financial assets - 64 76 68 43 72 72 57 70 65 70Principal residence 56 60 74 64 39 69 64 53 69 64 68Investment real estate - 16 17 27 13 22 30 14 8 17
Financial assets 99 90 86 92 50 81 99 79 80 83 91Deposit accounts 99 88 78 91 - 81 99 59 76 82 91Bonds 11 14 44 3 - 14 - 16 - - 19Stocks 16 11 40 33 - 10 22 36 - 30 21Mutual Funds 11 14 1 3 - 13 38 58 - - 18
Debt 39 68 65 52 30 22 80 70 59 68 75Home secured debt 28 41 - 28 10 - - 39 - 46
Sample size and age composition of head of household in LWS surveys
Canada Cyprus Finland Germany Italy Norway Sweden United
Kingdom US PSID US SCF
1999 2002 1998 2002 2002 2002 2002 2000 2001 2001
Average unit size 2.43 3.35 2.16 2.14 2.65 2.14 1.96 2.35 2.38 2.43
Mean age 47 49 49 52 55 49 51 53 48 49
Age composition (%)
24 or less 5.9 1.0 7.3 3.7 0.7 7.2 6.6 3.8 5.3 5.6
25-34 19.6 21.3 16.7 15.2 9.4 19.3 16.9 14.3 18.6 17.1
35-44 24.7 24.7 20.0 20.6 21.5 19.4 17.7 19.3 22.2 22.3
45-54 19.6 16.9 21.0 17.5 18.8 18.0 17.5 17.4 22.4 20.6
55-64 11.9 15.4 13.8 16.5 16.9 14.1 16.6 14.9 12.5 13.3
65-74 10.4 15.0 11.7 14.9 18.2 9.8 10.9 14.0 10.9 10.7
75 and over 7.9 5.7 9.5 11.6 14.5 12.2 13.8 16.3 8.1 10.4
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Debt-holders
0
10
20
30
40
50
60
70
80
90
100
24andless
25-34 35-44 45-54 55-64 65-75 75andover
Home-owners
0
10
20
30
40
50
60
70
80
90
100
24andless
25-34 35-44 45-54 55-64 65-75 75andover
Fraction of holders, by age of the household’s headsFraction of holders, by age of the household’s heads (per cent)(per cent)
Canada 1999 Finland 1998 Italy 2002
Sweden 2002 United States 2001
Source: LWS database, β-version and national sources.
Household portfolio composition (percentage share of total assets)Household portfolio composition (percentage share of total assets)
Wealth components Canada Finland Germany Italy Sweden UK US P US S
1999 1998 2002 2002 2002 2000 2001 2001
Non-financial assets 78 84 87 85 72 83 67 62
Principal residence 64 64 65 68 61 74 52 45
Real estates 13 20 22 17 11 9 14 17
Financial assets 22 16 13 15 28 17 33 38
Deposit accounts 9 10 n.a. 8 11 9 10 10
Bonds 1 0 n.a. 3 2 n.a. n.a. 4
Stocks 7 6 n.a. 1 6 n.a. 23 15
Mutual funds 5 1 n.a. 3 9 n.a. n.a. 9
Total assets 100 100 100 100 100 100 100 100
Total debt 26 16 23 4 35 21 22 21
of which: Home secured 22 11 19 2 n.a. 18 n.a. 18
Total net worth 74 84 77 96 65 79 78 79
Distribution of household net worth (per cent)Distribution of household net worth (per cent)
Statistics Canada Finland Germany Italy Sweden UK US P US S
1999 1998 2002 2002 2002 2000 2001 2001
Net worth (>0) 77 83 63 89 68 82 77 77
Net worth (=0) 3 2 28 7 5 6 8 4
Net worth (<0) 20 15 88 3 27 11 16 19
Quantile/median
10th -17 -6 0 0 -84 0 -11 -15
25th 0 1 0 8 -1 2 0 0
75th 350 218 1000 209 447 238 378 368
90th 708 390 2000 359 972 482 925 980
Wealth share
Top 10% 53 45 55 42 58 45 64 71
Top 5% 37 31 38 29 41 30 49 58
Top 1% 15 13 16 11 18 10 25 33
Gini index 75 68 80 61 89 66 81 84
Mean net worth
0
50,000
100,000
150,000
200,000
250,000
Sw
eden
Fin
land
Can
ada
Ger
man
y
UK
US
(P
SID
)
Ital
y
US
(S
CF
)
Median net worth
0
50,000
100,000
150,000
200,000
250,000
Sw
eden
Ger
man
y
Can
ada
US
(P
SID
)
US
(S
CF
)
Fin
land UK
Ital
y
Source: LWS database, β-version
Means and medians
(2002 PPP dollars)
Comparing results with secondary data Comparing results with secondary data
Inequality Rankings
Jantti & Sierminska S & B & S
SwedenSweden
US SCF US SCF
US PSID US PSID
Canada Germany
Italy Canada
Germany Finland
Finland UK
Sweden Italy
µ - p50µ - p50 GINI
LESSONS FROM LWS PROJECTLESSONS FROM LWS PROJECT
A great deal can be learned from comparative analysis: A great deal can be learned from comparative analysis: cross-nationally comparable data on household finance is cross-nationally comparable data on household finance is a priority a priority
Many differences across countries: taking stock of what is Many differences across countries: taking stock of what is available paves the way to a much needed process of ex available paves the way to a much needed process of ex ante standardisationante standardisation
Perfect comparability not achievable – BUT large space for Perfect comparability not achievable – BUT large space for improvementimprovement
Need for a flexible approach: comparability across Need for a flexible approach: comparability across countries may mean to adapt to country specificities rather countries may mean to adapt to country specificities rather than imposing too stringent common framethan imposing too stringent common frame
With caution, it is possible to perform many useful With caution, it is possible to perform many useful comparisons using the existing data comparisons using the existing data
LWS GOALSLWS GOALSWHERE DO WE STAND?WHERE DO WE STAND?
1.1. Built up within the Luxembourg Income Study (LIS) – Built up within the Luxembourg Income Study (LIS) – www.lisproject.org following the same model. following the same model.
2.2. Establish a network of experts of micro-data on household net Establish a network of experts of micro-data on household net worth to share accumulated knowledge and best practicesworth to share accumulated knowledge and best practices
3.3. Construct a comparable database containing wealth variables Construct a comparable database containing wealth variables based on existing datasets to enable cross-country based on existing datasets to enable cross-country comparisons on household net worth, portfolio composition comparisons on household net worth, portfolio composition and wealth distribution (including liquid assets, debts and and wealth distribution (including liquid assets, debts and other holdings)other holdings)
4.4. Produce guidelines for data producers – similar to what has Produce guidelines for data producers – similar to what has been done for income distribution statistics through LIS with been done for income distribution statistics through LIS with the final Report of the Canberra Groupthe final Report of the Canberra Group
MANY THANKS FOR YOUR MANY THANKS FOR YOUR ATTENTIONATTENTION
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