Wealth gap – ‘no simple link’ to income inequality

There is no simple link between high wealth inequality and high income inequality, according to a new study by researchers at the London School of Economics. They examine data on cross-country differences in household wealth, and in household wealth inequality, for five countries – the UK, Italy, Finland, Sweden and the USA.

Key findings

  • Wealth holdings in the USA are 'unambiguously' more unequal than in the UK, followed by Finland and Italy. But surprisingly there is a very high level of wealth inequality in Sweden – only the USA has more.
  • In all the countries examined, housing equity is the dominant asset in households' portfolios. It accounts for about 81 per cent of total net worth in the UK, about 86 per cent in Finland and Italy, and 57-61 per cent in the USA.
  • The differences between countries' wealth distributions cannot be wholly explained by differences in age, working status, household structure, education and income. In fact the largest share of the differences reflects 'strong unobserved country effects'.
  • In explaining the case of Sweden, one critical factor may be the level of home-ownership and the strength of the Swedish welfare state. Home-ownership is lower in Sweden, and the need for Swedes to hold assets of any kind is greatly reduced by state provision of health, education, pensions and income during periods of hardship. Hence average gross wealth is comparatively low, in a society with a very high standard of living.

Source: Frank Cowell, Eleni Karagiannaki and Abigail McKnight, Accounting for Cross-Country Differences in Wealth Inequality, CASEpaper 168, Centre for Analysis of Social Exclusion (London School of Economics)

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