The wealth of nations is not so even
Posted on May 09, 2015 by Tom Healy
When Adam Smith wrote ‘The Wealth of Nations’ in 1776 wealth consisted mainly of land, housing and other treasures. While comprehensive data are hard to come by, Thomas Piketty in his book, Capital in the 21 st Century, managed to track the main trends and composition of wealth in a number of large countries such as Britain, France and Germany. Here in Ireland discussion of wealth has been an under-researched and under-reported area until comparatively recent times.
Historical data hard to come by
My colleague, Tom McDonnell, wrote a joint TASC-NERI paper in 2013 entitled Wealth Tax: options for its implementation in the Republic of Ireland in which he drew on past research to estimate likely yields from different thresholds and rates of capital wealth tax. Prior to that Brian Nolan of the ESRI researched wealth distribution in 1987 and estimated that the top 5% owned 29% of the total. And, in 1972, Patrick Lyons published estimates of wealth distribution based on probate data in the Republic of Ireland in 1966. Lyons estimated that 5% of households owned just over 70% of total wealth. In more recent times, Credit Suisse estimated the share of the top 5% in Ireland at 47% in 2011. Due to survey and definitional coverage, great care is needed in comparing these estimates over time or across countries at any point in time. However, it is certain that the total stock of wealth (land, financial assets, real estate and other personal valuables) is more unequally distributed than income.
It should be noted that some forms of wealth may be in the form of future pension entitlements that do not correspond to an explicit financial asset such as ‘pay-as-you-go’ public sector pension schemes. The impact of including or excluding such forms of wealth is unknown but, in all likelihood, very limited given the wide distribution of households with a mix of incomes and future pension entitlements.
2013 CSO/Central Bank survey
Recently the Central Statistics Office published the Irish results of the European Household Finance and Consumption Survey (HCFS) here . The Survey reports data on housing, land, investments, valuables, savings and private occupational pensions and nets out any borrowings (mortgages, loans, credit card debt) to give a measure of net wealth. However, as noted in a previous Monday Blog on 1/2/15 ( Riches and Poverty ), the CSO did not publish details of the distribution of wealth by household wealth (in other words how much wealth is owned by households sorted by wealth and not just income).
I am grateful to the CSO for the following data obtained on a special request (Charts 1 and 2).
1. Net wealth is defined as real and financial assets less debt; hence a negative value for the bottom 10%.
2. Estimates are subject to sampling errors as well as data coverage challenges especially at the extreme ends of the wealth distribution.
3. Due to the duplication of the break points deciles do not always correspond to exactly 10% of households.
The key statistics to note are:
- The bottom 20% of households have no positive net wealth – they owe more than they own.
- The top 10% of households own 54% of all net wealth.
- The top 5% own 38% of all net wealth; and
- The top 1% own 15% of all net wealth.
And how does Ireland compare internationally?
How does Ireland compare internationally? A recent presentation to the NERI by Reamonn Lydon and Tara McIndoe-Calder of the Central Bank of Ireland ( The Household Finance and Consumption Survey: The Financial Position of Irish Households ) shows a somewhat more unequal distribution of wealth in Ireland compared to the rest of the Eurozone but much less unequal than the USA (refer to Chart 3 taken from the Central Bank of Ireland Quarterly Bulletin 01/2015 : page 86).
Chart 3: Net Wealth distribution in Ireland, Eurozone and the USA (2013)
Finally, has wealth distribution, here, become more unequal?
It would appear that it has (but data comparability and coverage is a major concern in any such analysis). Refer to Chart 4 taken from a presentation by Lydon and McIndoe-Calder.
Chart 4: Wealth distribution in Ireland in 1987 and 2013 compared
In summary, three conclusions can be drawn:
- Wealth – net of debt – is very unequally distributed in Ireland with the top 10% owning over half of the total.
- Inequality of wealth – although not as severe as in the home of advanced economy inequality – the USA – is somewhat greater in Ireland than across the Eurozone countries.
- Inequality in wealth has probably increased over time (since the 1980s) reflecting a mix factors including demography, tax policy, house prices, etc.