4. Understanding the Determinants of Wealth Inequality

For an overview of some of this literature, see Gallup (2012) as well as Deininger and Squire (1998), Savvidesa and Stengos (2000), Atkinson and Brandolini (2001), and Barro (2000, 2008).

Along with government, other types of social institutions can also affect wealth and inequality. For example, religious affiliation can also be a factor in wealth accumulation as well as its distribution, if they influence activities such as savings, child bearing, and inheritance. See Di Matteo (2016b).

As another example, Spain sees a fall in income inequality during the opening phases of its economy opening up to international competition from the 1850s to the 1890s and then a rise in inequality from the 1890s to the start of World War I, which coincided with a return to protectionism. See Escosura (2008).

Life-cycle saving is the accumulation of assets during productive years to finance consumption during a period of non-income earning activity. See Ando and Modigliani (1963), Bernheim et al. (1985), and Modigliani (1988a, b).

For additional detail examining the link between age structure and wealth inequality, see Di Matteo (2001).

Certainly, evidence for Canada also suggests periods of rapid economic growth like the wheat boom era were also associated with rising inequality. See Di Matteo (2012).

Armour et al. (2013) and Burkhauser et al. (2013) use survey evidence from household panels in the United States and Australia to study the effect of realized and unrealized capital gains on income inequality and conclude that they are important drivers of inequality.

For example, Saez and Veall (2005) showed that Canadian top income shares were negatively correlated with top marginal income tax rates.

The Economic Inequality Across Italy and Europe Research Project (EINITE) headed by Guido Alfani, and including researchers Francesco Ammannati, Matteo Di Tullion, Roberta Frigeri, Hector Garcia Monero, Sergio Sardone and Davide De Franco, Fabrice Boudjaaba, Carlos Santiago-Caballero, and Wouter Ryckbosch housed at Bocconi University, has as its main research questions the relationship between economic inequality and economic growth.

Pikkety et al. (2014).

These countries include Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, and the United States. The data set and documentation are available at: http://​www.​macrohistory.​net/​data. Accessed October 2016. Òscar Jordà, Moritz Schularick, and Alan M. Taylor. 2017. ‘Macrofinancial History and the New Business Cycle Facts’. NBER Macroeconomics Annual 2016, volume 31, edited by Martin Eichenbaum and Jonathan A. Parker. Chicago: University of Chicago Press.

Calculations by author.

Along with the shock of war, plague and pestilence may also be factors. Alfani and Ammannati (2017) note declining inequality in the Florentine state in the wake of the Black Death from 1348 to 1349.

Scheidel (2017a, b).

Piketty (2014: 106–109).

Piketty (2014: 147).

During World War II, Canadian income tax rates soared. The pre-World War II marginal tax rate on taxable income between $1000 and $2000 in the dollars of the day was 4 percent. By 1942, it had increased to 44 percent. For taxable income between $10,000 and $15,000, it was 13.7 percent before the war, but fully 69 percent by 1942. See Di Matteo (2017b).

The growth of the public sector is also an area of substantial scholarship. Two key explanations are Wagner’s Law and the Peacock-Wiseman Displacement Hypothesis. Wagner’s Law maintains government expenditure grows faster than income in industrializing countries because government expenditures such as social welfare expenditures are income elastic. Peacock and Wiseman argue that the growth of public spending is driven by taxpayer tolerance of taxation and this tolerance is greater during times of national or social crisis such as war. See Wagner (1893, 1894) and Peacock and Wiseman (1967). See also Tanzi (2011) for an overview of the changing role of the state.

Author’s calculations from data obtained from the Jorda-Schularick-Taylor Macro History Database. See: The data set and documentation are available at: http://​www.​macrohistory.​net/​data. Oscar Jorda, Moritz Schularick, and Alan M. Taylor. 2017. ‘Macrofinancial History and the New Business Cycle Facts’. NBER Macroeconomics Annual 2016, volume 31, edited by Martin Eichenbaum and Jonathan A. Parker. Chicago: University of Chicago Press.

See Di Matteo (2013b: 4). For a discussion of Canadian inequality trends and public sector activity see Di Matteo (2016a)

In the subsequent regression work of the next section, government size is not explicitly controlled for given the heavy correlation of this expansion with the post-war economic boom variable and the contraction of the government sector with the second era of globalization, as well as the relaxation of estate tax regimes after 1970.

For the United States, data from the Historical Statistics of the United States, Colonial Times to 1970 for the period 1890–1970, and OECD numbers for the post-1990 period, suggest increase in the federal share of total government spending over time. For the period 1870–1938, the average federal share was approximately 40 percent. By the late 1990s, the federal share of total government spending in the United States exceeded 50 percent. By comparison, in the late 1990s, numbers from the OECD show that the central government share of expenditure in the United Kingdom—traditionally more centralized—was 90 percent, whereas by 2013, it has declined to just over 80 percent.

See http://​www.​macleans.​ca/​economy/​economicanalysis​/​the-most-important-economic-charts-to-watch-in-2018/​#liviodimatteo

Davies/Shorrocks, ‘Distribution’ (2000: 643–644).

For example, the Royal Commission on the Distribution of Income and Wealth (1979) for the United Kingdom found the reduction in the wealth share of the top tiers of the wealth distribution over the 1972–1976 period to be the result of a rise in land prices and a drop in the stock market.

Landy (2013).

Historical Statistics of the United States, Colonial Times to 1970, Series N238-245. See: https://​www.​census.​gov/​library/​publications/​1975/​compendia/​hist_​stats_​colonial-1970.​html

Source: Federal Reserve Economic Data. RHORUSQ156N: Homeownership Rate for the United States, Percent, Quarterly, Not Seasonally Adjusted.

See: Statistics Canada (2013) National Household Survey: Income and Housing—Homeownership and Shelter Costs in Canada, National Household Survey year 2011 (99-014-X). http://​www12.​statcan.​gc.​ca/​nhs-enm/​2011/​as-sa/​99-014-x/​2011002/​c-g/​c-g01-eng.​cfm

See: http://​webarchive.​nationalarchives​.​gov.​uk/​20160107120359/​http://​www.​ons.​gov.​uk/​ons/​rel/​census/​2011-census-analysis/​a-century-of-home-ownership-and-renting-in-england-and-wales/​short-story-on-housing.​html

Disney and Luo (2014).

Of course, nothing is ever actually free. Recipients of land grants nonetheless had to commit to working the land for a given period of time and often even paid a small nominal fee.

Di Matteo (2012).

See, for example, Gregson (1996), Stewart (2006), and Canaday (2008).

See Di Matteo (2012).

Ryan-Collins et al. (2017) note how Thomas Jefferson associated small-scale land ownership as a virtue and how in the twentieth century politicians have promoted home ownership as means of promoting democracy.

Card et al. (2004).

Data Source: OECD STAT Aug 23, 2017.

Source: Guardian Trade Union Database. https://​www.​theguardian.​com/​news/​datablog/​2010/​apr/​30/​union-membership-data#data. For a discussion see Lewis (2010).

For an overview of Canadian labor history, see: http://​www.​thecanadianencyc​lopedia.​ca/​en/​article/​working-class-history/​

See Riddell (1993).

Mayer (2004).

Riddell (1993), for the period 1920–1990, is union membership as a percentage of nonagricultural paid workers. The OECD numbers for 1980–2014 are from OECD STAT and are for union members as a percent share of wage and salary workers.

See Galarneau and Sohn (2013).

Intergenerational wealth transmission can have significant effects on wealth distribution over time. The simple decision as to whether inheritances go to the firstborn son (primogeniture) or whether there is more partible or equal division (multi-geniture) is important in affecting wealth distribution. See Di Matteo (2016a, b).

The role of inheritance is also noted in the research on pre-industrial European economic inequality being conducted by EINITE at Bocconi University and the work of scholars such as Alfani (2015), Alfani and Ryckbosch (2016), Alfani and Ammannati (2017), and Ryckbosch (2017).

Delong (2003: 4–5).

Ransom and Sutch (1986) argued that the nineteenth century saw America’s move from a target bequest motive to life-cycle saving. Using evidence from surveys of industrial workers in Michigan and Maine, they found declining savings rates for older workers and a hump-shaped profile that would indicate life-cycle saving. Di Matteo (1997) using probate data also finds evidence of such a transition for the nineteenth century in Ontario. In the colonial United States, Alston and Schapiro (1984) argue the North was characterized by multi-geniture and the South primogeniture. Salmon (1980) finds that Germans in east-central Illinois used partible inheritance and the Irish impartible. Newell (1986) for Butler County, Ohio found more equal estate division over time. The British legal legacy in nineteenth century English Canada made primogeniture dominant, but there was a move toward greater equality in estate division. Gagan (1976) describes three inheritance systems in nineteenth-century Peel County, Ontario: partible, impartible, and partible-impartible. While the first two are self-explanatory, the last is whereby the estate was devolved on one or several heirs (usually males) with compensation payments to the siblings.

See The Economist (2017) ‘Death of the death tax’, November 25th to December 1st, 20–22.

The Canadian federal estate tax ended in 1973 as part of a process of tax reform, given that it was believed that the presence of both capital gains taxation at death and an estate tax amounted to double taxation.

Lee (1966) separates the forces affecting migration into pluses, minuses, and zeros, with pluses pulling individuals in, minuses pushing them out, and zeros with evenly balanced factors. See also King (2012) for an overview of migration models.