Wealth inequality and the Great Recession: Evidence from Sweden Jacob Lundberg and Daniel Waldenström Uppsala University Presentation at MiSOC/ISER, September 16,

The economy in Sweden U and Y Disposable income Gini

This paper Two main objectives: First, estimate of wealth distribution in Sweden since – Wealth tax repealed in 2007, Property tax reformed in 2008 – No household wealth data exist after 2007 in Sweden! Second, study role of Great Recession for wealth distribution – Shocks to output, growth, unemployment and stock prices – Were the rich able to escape the crisis or did they take the strongest blow? – Did crisis experiences differ among the rich, across occupations etc? Paper structure Estimating private assets and liabilities Estimate wealth distribution

Recent research on other countries United States – Wolff (SCF, 2012): "Asset price meltdown for the middle class" Plummeting house prices main explanation – Saez and Zucman (2014): "Wealth inequality is making a comeback" New estimates using capitalized capital income Germany: – Grabka and Westermeier (GSOEP, 2014): Small changes in both wealth levels and household wealth inequality 4

Data Database: LINDA – 3,35% nationally representative sample (300,000 individuals) – Panel – Household members added (in total about 800,000 obs) Wealth data sources – Wealth Register – Other registers (Income and Tax Register, Property Tax Register, Land survey register) Additional information – Firm-specific dividends (SIX financial market information) – Financial Accounts (macro aggregate on household financial balances) 5

Results Part I: New estimates of individual wealth 2008‒2012 6

Estimating individuals' wealth in We use different approaches – Observed actual stocks (non-financial assets, debts) – Observed dividend income and payout/share – Regression-based "Investment income method" – Chain with price changes assuming no transactions Calibrate model using "true" outcomes during Problem: too little noise in imputed variables and is added noise independent of the variables – Rubin (1976), Pagan (1984), Dardanoni et al (2011) – We abstract from this issue so far Compute inequality estimates on individuals (so far) 7

Estimation of real estate/property 8

Average housing value: estimated vs actual 9

Real estate estimations vs actual 10 MeanGini

Financial asset estimations,

Bank deposit estimations vs actual 12 MeanGini

Estimation of listed shares 13

Value of shares in 2007: Estimation / "Truth" 14 Capitalization method (Dividend / rate of return) Our direct estimation

Estimation of other financial assets Mutual funds – Problematic since dividends typically reinvested – We use value of 2007 and calculate forward using value indices – Assumes no net savings Bonds and fixed-interest securities – Not fully covered. Premium lottery bonds not observed. – Use interest earnings to estimate value Condominiums – Simple approach: Extrapolate individual's 2007 ownership using municipality price indices. Assuming no transactions! Solvable using new Apartment Register at Statistics Sweden (Census 2011) 15

Estimation of liabilities Two types of loans: State student loans (15%), Mortgages (85%) – We observe student loans Mortgages are observed in Inteckningar/Pantbrev – Land Survey Register (Lantmäteriet) – By year, property and individual (incl. debt share) Differs from capitalization method (Debt = interest payments/interest rate) 16

Liabilities projection vs actual 17 MeanGini

LIabilities in 2007: Estimation / "Truth" 18 Capitalization method (Interest payment / rate of return) Our direct estimation from mortgage contracts

Results Part II: How did the wealth of Swedes fare during the Great Recession? 19

Results 1: How well do our estimations perform? Average total wealth: Actual vs Estimated 20

Results 1: How well do our estimations perform? 21 Histogram of the ratio of predicted to true net wealth in 2007, using only data for the years up to 2004 for the prediction

Results 2: Wealth levels across the distribution Average wealth across deciles. No strong crisis impact! 22

Results 2: Wealth inequality 23 Gini coefficient of net wealth according to Wealth Register (–2007) and our imputations (2007–) – A level break in 2007, but no strong trend in

Results 2: Wealth inequality 24 Figure: Top wealth shares (Top 10%, Top 1%, Top 0.1%) according to the Wealth Register (–2007) and our imputations (2007–) – No strong trend after crisis (similar to Gini) Top 0.1% Top 1% Top 10%

Results 3: Did net wealth trends of financial sector employees differ? 25 Figure: Average wealth of financial sector employees vs all others – A drop in 2008, but after that continued increase in difference Financial sector employees All others

Results 3: Wealth trajectories across age and sex 26 AgeSex

To be done... Remake analysis using household Improve measurement further – Non-listed equity Half of all privately owned business equity (Waldenström, 2014) Match estimated firm values from Firm register FRIDA – Consumer durables Car Register (estimate car values) Finer checks on the impact of the crisis – Impacts across asset classes – Decomposition of Gini across assets and time – Look at distribution of capital incomes 27

Concluding remarks We investigate how the wealth of Swedish households developed before, during and after the Great Recession The 2007 wealth tax repeal implies a lack of official wealth statitics – We estimate household wealth using income and property tax registers Preliminary findings: Seemingly small effects of the crisis overall Wealth inequality (Gini, top wealth shares) exhibit no breaks in levels or trends Financial sector employees seem to experience a short-run hit, but long-run trend unbroken 28