Capital is Back:Wealth-Income Ratios in Rich Countries 1700-2010, Thomas Piketty, Paris School of Economics; Gabriel Zucman, Paris School of Economics, July 4, 2013.
“How do aggregate wealth-to-income ratios evolve in the long run and why? We address this question using 1970-2010 national balance sheets recently compiled in the top eight developed economies. For the U.S., U.K., Germany, and France, we are able to extend our
analysis as far back as 1700. We ﬁnd in every country a gradual rise of wealth-income ratios in recent decades, from about 200-300% in 1970 to 400-600% in 2010. In effect, today’s ratios appear to be returning to the high values observed in Europe in the eighteenth and
nineteenth centuries (600-700%). This can be explained by a long run asset price recovery (itself driven by changes in capital policies since the world wars) and by the slowdown of productivity and population growth, in line with the ! = s/g Harrod-Domar-Solow
formula. That is, for a given net saving rate s = 10%, the long run wealth-income ratio ! is about 300% if g = 3% and 600% if g = 1.5%. Our results have important implications for capital taxation and regulation and shed new light on the changing nature of wealth,
the shape of the production function, and the rise of capital shares.”