Income and wealth concentration is a widely debated topic in the U.S. Recently numerous articles and op-eds have been written in leading newspapers, most notably by Paul Krugman in the New York Times. The Wall Street Journal’s Robert Frank has a weekly column about the American wealth boom, and has also written the best-selling book Richistan on the lives of the new rich. Inequality has become a central issue in the 2008 presidential race, and talk of a “new gilded age” has become commonplace. The background to all this is research showing that American inequality has been rising steadily since the mid 1970s and is now at levels found only before the World War II.
The situation in Sweden—known for its extensive welfare state—is of course completely different. Or is it? In recent research, we have developed a series for wealth and income inequality for Sweden over the entire 20th century.
Broadly speaking, our series shows inequality decreasing until around 1980, a trend that Sweden shares with most developed countries, including the U.S. Thereafter, Swedish inequality has increased, but by how much depends on what definitions are used. For income, for example, the increase seems to be larger when capital gains are included, with the share of total income earned by the top percent going from around 4 percent in 1980 to 6 percent when capital gains are excluded, and 8 percent when they are included. Even if this increase is large, the Swedish figures are still well short of the current U.S. top percent income share at 15 percent, up from 8 percent in 1980.
Looking at wealth concentration, the difference between Sweden and the U.S. is also significant when comparing official numbers. In Sweden the share of total private wealth held by the richest 1 percent of households is about 20 percent. The corresponding number in the U.S. is 35 percent. However, there are a number of aspects about Swedish wealth that are not well captured by these statistics. There is, for instance, plenty of anecdotal evidence suggesting that large sums of money have been moved out of the country to avoid taxation. It is also well known that the values of closely held companies are likely to be seriously underestimated.
And what about rich, successful Swedish citizens, such as Ingvar Kamprad, founder and owner of IKEA? Is it obvious that they should not be included? We have tried to estimate the effects of adding these factors, and the results are astounding. When including wealth abroad, the share held by the wealthiest 1 percent increases to around 30 percent; when also adding underestimated wealth held in Sweden, the share is close to 35 percent; and when also including the wealth of the super-rich Swedes who have left the country (but remain citizens), the share is almost 40 percent—that is, higher than in the U.S. Our attempts at making similar corrections for the U.S. series resulted in almost no change in wealth concentration.
Does this mean that Sweden is not as equal a society as we have previously thought? Well, our answer would have to be both “yes” and “no” (we are economists, after all). The most obvious reason for arguing that Sweden is more equal despite the high inequality of private wealth is that Americans save for a number of things that Swedes expect the government to provide for free or at a very low cost, such as higher education and health care. This means that not having any net wealth, which is true for about a third of Swedish households, does not have at all the same implications in terms of welfare as it does in the U.S. In this sense, poor Swedes are richer than Americans in similar situations. On the other hand, it seems almost certain that some of the very richest Swedes successfully avoid showing up in the statistics, and while this is probably the case in the U.S. too, the size of the effect is likely to be larger in Sweden. In this sense wealth concentration is probably much higher than we have previously thought.
Jesper Roine is assistant professor at the Stockholm Institute of Transition Economics at the Stockholm School of Economics.
Daniel Waldenström is a research fellow at Sweden’s Research Institute of Industrial Economics.