The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 The concentration of personal wealth in Italy 1995-2013 Paolo Acciari (MEF, Italy) Facundo Alvaredo (PSE & Conicet) Salvatore Morelli (GC-CUNY & Stone Center on Socio-Economic Inequality) First WID.world conference Paris School of Economics (PSE) Paris – 14/15 Dec 2017 December 15, 2017
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Italian wealth topography: The (high) mountains of wealth and the (shallow) sea of debt Net personal wealth (per-adult). Source: Elaborations on data from Bank of Italy, ISTAT, and WID.world -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 2/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Objective: Estimating the concentration of personal wealth and its evolution since mid-1990s ◮ We use confidential inheritance tax register data and the “mortality multiplier” method to study the concentration of current marketable wealth (sum of financial & real assets net of liabilities): only source of information alternative to the Bank of Italy household survey on income and wealth (e.g. no tax on wealth and no full taxation of capital income at the individual level). ◮ Household surveys are typically less suited to study the high-end wealth groups due to under-sampling of wealthy households and to differential under-reporting and non-response rates. (Vermeulen 2015) ◮ First systematic empirical application to the Italian data (see also Gabbuti 2017 for application to historical aggregate data 1890-1914) ◮ Caveat: Results are still preliminary (especially for 2001-2006 period) and may be subject to revisions. -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 3/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 INHERITANCE TAX ADMINISTRATION -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 4/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Current inheritance (and gifts) tax legislation Note: in 2014 the no-filing threshold was raised to 100 thousand Euros. -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 5/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 From Estate duty to Inheritance tax: changes to tax law 1995-2013 Note: Rules also apply to donations and inter-vivos gifts Inheritance tax revenue Inheritance tax incidence by W ranges -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 6/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 NET PERSONAL WEALTH CONCENTRATION -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 7/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Concentration of net personal wealth from tax records Top1% and Bottom 90% in Italy : 1995 -2013 60 30 55 28 50 26 % of Total Personal Wealth % of Total Personal Wealth 24 45 22 40 20 35 18 30 16 14 25 12 20 10 15 8 10 6 4 5 2 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 year Top 1% trend Bottom 90% (right axis) trend comparison with Top1 % gross income Wealth threshold - P99 and P99.9 Full -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 8/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Top1% from tax records and household survey Wealth Concentration - Top1% in Italy : 1995 -2013 30 28 % of National Personal Wealth 26 24 22 20 18 16 14 12 10 8 6 4 2 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 year Internal total Brandolini (2014) SHIW (Equal split adults \& no durables) Source: Brandolini (2014) from household survey (SHIW): net equivalent wealth. Note: External totals refer to the total personal wealth from the NA and the total adult population (20 + ) from ISTAT. -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 9/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 COMPARING RESULTS TO OTHER COUNTRIES -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 10/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Comparison with the UK, France, and the US 40 % of National Personal Wealth 35 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 year Italy France US UK Sources: WID.world - Alvaredo, Atkinson, and Morelli (2016) for the UK; Saez and Zucman (2016) for the US; Garbinti, Goupille-Lepret, and Piketty (2016) for France. -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 11/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Average unconditional wealth over the life-cycle Wealth inequality or wealth accumulation over the life-cycle? Substantial heterogeneity of mean wealth across age groups... Mean gross wealth - Thousands Euro 250 200 150 100 50 0 under20 20-40 40-50 50-60 60-70 70-80 above80 Age 1995 2007 2013 -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 12/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Wealth for each age group identified from tax form ... But net wealth is unequally distributed within all age groups! 3500 3250 3000 Thousands 2010 Euros 2750 2500 2250 2000 1750 1500 1250 1000 750 500 . 355 . 285 . . 250 100 0 under20 20-40 40-50 50-60 60-70 70-80 above80 p1-p99 range average net wealth zero threshold Upper Lorenz curves by age groups -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 13/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Explaining the age distribution of large wealth holders: the role of gifts and inheritance ...and very wealthy individuals are not overwhelmingly ‘old’. Bequests and inter-vivos gifts can explain very wealthy children. 15 Share of Wealth holders - percent 10 5 0 1. under5 0 2. 5-10 3. 10-15 4. 15-20 5. 20-25 6. 25-30 7. 30-35 8. 35-40 9. 40-45 10. 45-50 11. 50-55 12. 55-60 13. 60-65 14. 65-70 15. 70-75 16. 75-80 17. 80-85 18. 85-90 19. 90-95 20. 95-100 21. over100 Age groups All population Top 10% group Top 1% group -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 14/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 THE ESTATE MULTIPLIER METHOD -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 15/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 The application of the Estate multiplier method From the decedent wealth holders to the living wealth holders. Challenge: death does not ”sample” individuals randomly. -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 16/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 The application of the Estate multiplier method From the decedent wealth holders to the living wealth holders. Challenge: death does not ”sample” individuals randomly. Solution: mortality multipliers. Adult population coverage Population coverage by Age groups Relative age distribution: full vs. identified population -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 17/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 Full adult population vs. identified wealth holders 65 50 60 55 Million - number of people 50 45 40 40 35 Percent 30 25 20 30 15 10 5 0 20 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 year Identified population Actual population (20+) Percentage coverage (right axis) Source: ISTAT, total population. Estimating wealth of the missing population (approx 200-300 bln Euros in 2013): Average wealth and liabilities of heads and spouses in renter households also imputed to adults that are neither heads of household or spouses/partners. -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 18/ 52
The Graduate Center - CUNY Salvatore Morelli – 15 Dec 2017 ADJUSTMENTS TO WEALTH -Acciari, Alvaredo, & Morelli The concentration of personal wealth in Italy – – Slide 19/ 52
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