The importance of wealth concentration and why is so difficult to measure
by Facundo Alvaredo, Anthony Atkinson and Salvatore Morelli, VoxEU.org
The concentration of personal wealth is now receiving a great deal of attention after having been neglected for many years. The much discussed book by Thomas Piketty, Capital in the 21st Century, stirred up an astounding debate across the world due to his dystopic vision of a future world where wealth will be more and more concentrated within the hands of a small elite that will perpetrate its own power by passing on enormous fortunes and advantages to the select few of the following generation.
Piketty urged governments to take steps to prevent this from happening. As argued by Ravi Kanbur and Joseph Stiglitz in a recent Vox column (Kanbur and Stiglitz 2015), the increase in wealth we observe nowadays stems in part from the increase in rents which “once created will provide further resources for rentiers to lobby the political system to maintain and further increase rents”. The surge of interest in wealth distribution is additionally justified by the recognition that, in seeking to understand the determinants of 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.1
But how much do we actually know about wealth concentration at the top and how it is changing today? In a new paper (Alvaredo et al. 2015), we look at the UK – a country where the wealth distribution has long been studied – and ask three questions:
What is the share of total personal wealth that is owned by the top 1%?
Is wealth much more unequally distributed at the top than income?
How far is wealth concentration increasing in the 21st century?
Our central theme is that there are different sources of evidence about wealth concentration, each with strengths and weaknesses. To some extent they tell similar stories, but there are also key differences, and these differences explain in part the reasons why the subject has given rise to controversy.