Trends in Wealth Inequality

2014

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The gap starts to widen

This year, for the first time, we have been able to construct consistent series for the distribution of wealth in all countries since the year 2000. The resulting data enable us to assess the direction and magnitude of trends in global wealth inequality. Our research suggests that countries often experienced a structural break in inequality trends around the time of the financial crisis. Prior to 2007 most countries show little change in inequality, or a slight decline; after 2007, wealth inequality has tended to increase.

Considering the entire period since 2000, Figure 2 shows that wealth inequality has increased in Latin America and Africa, and to a greater extent in India and China, but fallen slightly in Europe and North America, and also by a fraction in the world as a whole. For the Asia-Pacific region, the evidence is ambiguous: the share of the top wealth decile declined a little, but the share of the top percentile rose.

Splitting the period reveals markedly divergent trends before and after the financial crisis. From 2000 to 2007, inequality fell in every region except China and India. Since 2007, the share of both the top decile and the top percentile has risen in every region except North America. The reduction in wealth inequality during the early period was especially pronounced in Asia-Pacific, Europe and Latin America. The subsequent rises are more consistent across regions, North America excepted.

Inequality trends for individual countries

Inequality trends for individual countries are explored in more detail in Table 2, with countries listed in order of the increase in inequality since 2000. The most striking feature is the contrast in experience before and after the financial crisis. In the period from 2000 to 2007, 12 countries saw a rise in inequality while 34 recorded a reduction. Between 2007 and 2014, the overall pattern reversed: wealth inequality rose in 35 countries and fell in only 11. The reason for this abrupt change is not well understood, but it is likely to be linked to the downward trend in the share of financial assets in the early years of this century, and the strong recovery in financial assets since 2007.

To aid discussion, we use the term “slight rise” to denote an increase of 0.1-0.2 percentage points per year in the wealth share of the top decile. The corresponding ranges for a “rise” and a “rapid rise” are 0.2-0.5 and 0.5+ respectively. Similar labels are applied to decreases in wealth shares, while changes averaging between -0.1 and +0.1 percentage points per year are described as “flat”.

Over the entire period since 2000, nine countries have experienced a rapid rise in inequality, but only two had a rapid fall. Wealth inequality rose rapidly in China, Egypt and Hong Kong both before and after the financial crisis. Argentina, India, Korea, Taiwan, Turkey and Russia also experienced a rapid rise over the whole period, although Korea and Turkey had only a moderate rise before 2007, Taiwan showed no trend in the early years, and wealth inequality actually fell earlier in Argentina and Russia. Brazil, the Czech Republic, Indonesia, Israel and the United Kingdom also had significant increases in wealth inequality this century, due almost entirely to rises after 2007. Thus countries with rising inequality are spread quite widely across all regions apart from North America.

At the other extreme, inequality fell rapidly in Poland and Saudi Arabia over the period 2000-14, and a significant reduction was experienced in eight other countries, again widely spread across regions and stage of development. They include Malaysia, New Zealand, the Philippines and Singapore in Asia-Pacific; France in Europe; and Canada, Colombia and Mexico in the Americas.

While there is no clear pattern relating wealth inequality trends to region or to the stage of development, there is something distinct about the G7 countries. Only one of them, the UK, recorded rising inequality over the entire period 2000-14, and only three show an increase after 2007 – France, Italy and the UK. This is unexpected, and interesting, for two reasons. First, income inequality has been rising in these countries and there is heightened concern about wealth inequality as well; yet in most of them, equalization from 2000 to 2007 was sufficient to offset any subsequent rise in inequality. Second, it appears that wealth inequality did not increase in some of the major countries closest to the center of the global financial crisis. This result may be explained in part by the fact that the crisis saw the wealthy lose proportionally more than those at lower levels of the pyramid. In some countries that equalizing effect still dominates, while in others it has been reversed, partly due to strong market performance since 2009.

Summary and conclusions

As regards wealth inequality trends, our results for the whole period 2000-14 show that wealth inequality rose in exactly half of the 46 countries monitored. Splitting the period reveals markedly different experiences before and after the financial crisis: inequality fell in 34 countries in the earlier years, but in only 11 countries after 2007. This pattern is broadly reflected in the regional experiences, although inequality rose in China and India both before and after the financial crisis, and declined slightly in North America in both sub-periods. Examples of rising and falling inequality are found among developed countries and among emerging markets, so wealth inequality trends show no clear link with the stage of development. However, it is interesting to note that only one G7 nation – the United Kingdom – appears in the list of 23 countries recording an increase in inequality this century.

2013


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