Eva Sierminska Luxembourg Wealth Study Andrea Brandolini

1. Comparing wealth distribution across rich countries: First results from the Luxembourg Wealth Study Eva Sierminska Luxembourg Wealth Study Andrea Brandolini Banca d’Italia, Economic Research Department and Luxembourg Wealth Study Timothy M. Smeeding Syracuse University and Luxembourg Wealth Study The Luxembourg Wealth Study: Enhancing Comparative Research on Household Finance Banca d’Italia, Roma, 5-7 July 2007

2. Outline • LIS and LWS • Goals and History • Countries and datasets • Issues in database construction • Preliminary results • Lessons from LWS

3. LWS GOALSWHERE DO WE STAND? • Built up within the Luxembourg Income Study (LIS) – www.lisproject.org following the same model. • Establish a network of experts of micro-data on household net worth to share accumulated knowledge and best practices • Construct a comparable database containing wealth variables based on existing datasets to enable cross-country comparisons on household net worth, portfolio composition and wealth distribution (including liquid assets, debts and other holdings) • Produce guidelines for data producers – similar to what has been done for income distribution statistics through LIS with the final Report of the Canberra Group

4. LWS HISTORY (1) • August 2002 – 27th IARIW Conference, Stockholm • Wealth inequality trends-wealth comparability lagging income comparability • July 2003 – LIS headquarters, Luxembourg • Meeting of experts on wealth and data collection decided LWS worthwhile project • October 2003 – Levy Economics Institute, New York • Further meeting of experts, update of project funding, decision to hire coordinator • March 2004 – LIS headquarters, Luxembourg • Official launch of LWS • January 2005 – Bank of Italy, Perugia • Workshop on methodological issues • July 2005 – LIS headquarters, Luxembourg • Biennial meeting of LIS asbl: LWS fully integrated in LIS activities after completion of first stage of the project

5. LIS HISTORY (2) • June 2006 – LWS database, Beta Version • Release to project participants • August 2006 – 29th IARIW Conference, Joensuu, Finland • Presentation of LWS data and methodology • 14-15 December 2006 – LIS headquarters, Luxembourg • Workshop to discuss first comparative paper plus country papers comparing Beta version with original national sources in order to prepare final documentation • 5-7 July 2007 – Final conference –Rome, Italy • Presentation of the LWS project, papers on methodological issues and substantive issues • 2007 – LWS database, Alpha version • Release to all LIS users

6. LIS and LWS LWS Builds on LIS as a microdata harmonization and research project • LIS (Luxembourg Income Study) 23 Years; 31 countries; 160 datasets website: www.lisproject.org • LWS (Luxembourg Wealth Study) 3 Years; 10 countries; 12 datasets website: www.lisproject.org/lws.htm

7. LWS COUNTRIES AND DATASETS Survey of Household Financial Wealth Survey of Financial Security Survey of Consumer Finances Household Wealth Survey Socio-Economic Panel Study Survey of Household Income and Wealth Income and Wealth Survey Wealth Survey British Household Panel Study Panel Study of Income Dynamics Survey of Consumer Finances 2004 1999 1999-2002 1994-1998 2002 1995-1998-2002 1997-1999-2002 1997-1999-2002 2000 1999-2001 1998-2001 • Austria • Canada • Cyprus • Finland • Germany • Italy • Norway • Sweden • United Kingdom • United States Underlined dataset are included in Beta version  Varied group of participants

8. ISSUES IN LWS CONSTRUCTION Surveys differ • Purpose: some designed to collect wealth data (CA, IT, US-SCF), some supplemented with special modules (GE, UK, US-PSID) • Source: mostly sample surveys, but supplemented with administrative data in Nordic countries • Sampling frame: some over-sample the rich • Unit of analysis: generally household, but individual in GE and UK, family in US and CA • Number of wealth items: from 7 in UK to 30+ in IT, NW, US-SCF  Perfect comparability cannot be achieved  Define basic wealth concept

9. IDEAL LWS VARIABLE STRUCTURE • Demographics • Income and consumption aggregates • Wealth variables -(household-individual-family level) • Non-financial assets • Financial Assets • Liabilities • Behavioral variables • Bequest motivation • Inheritance expectations • Motives for savings • Intervivos transfers • Risk attitude • Income and health uncertainty/risk • Expectations (fertility; income support from the state)

10. LWS Wealth Variables (1)

11. LWS Wealth Variables (3)

12. LWS Wealth Variables (5)

13. Wealth Summary Variables Risky assets : RA =TB+ST+TM Total assets: TA=sum of all assets Home secured debt: HSD=MG+OMG+OHSD Non-housing debt: NHD=TD-HSD Total financial assets: TFA1=DA+ST+TB+TM Total non-financial assets: TNF1=PR+IR TNF2=PR+IR+BA Total debt: TD=HSD+VL+IL+EL+OL+ID Net worth: NW1=TFA1+TNF1-TD NW2=TFA1+TNF2-TD NW = (sum of all assets)-(sum of all debts)

14. Other Wealth Variables Miscellaneous net worth: OWL Inheritance received: INH1-INH3 Year of inheritance: YRINH1-YRINH3 Remaining inheritance: INH4 Tenure: OWN Type of dwelling: DWELL Own business: BUS Special variables: IRnet, Vhnet, Flags

15. Revision since LWS Technical Conference: • Imputations for Germany (SOEP) • Working on inclusion of behavioral variables in LWS • Minor data reclassification • Exploring possibility of including pensions in Sweden - Addition of variables to reflect national wealth concepts

16. Preliminary Results • Some preliminary results for a subset of countries participating in the project

17. United United Canada Cyprus Finland Germany Italy Norway Sweden United States Kingdom States SCF PSID Net worth - 61 - - 0 - - 14 - 5 Total Financial Assets - 21 - - - - - - - 9 - - Total Non-Financial Assets - 25 - - 0 - - 2 - 2 Total Debt - 43 - - - - 7 - 3 sample size 15,933 895 3,893 63,460 8,011 22,870 17,954 4,867 22,210 7,406 Proportion of missing values in major components of net worth.

18. The cost of cross-national comparability:reconciling LWS and national concepts(averages in thousands of national currencies) Source: LWS database, β-versionand country sources. Household weights are used. (1) Business assets. (2) It does not include other debts.

19. Per capita household net worth: LWS and national balance sheets Source: LWS database, β-version and national sources.

20. Means and medians (2002 PPP dollars) Source: LWS database, β-version

21. Wealth components Austria Canada Cyprus Finland Germany (1) Italy Norway Sweden United United United Kingdom States P States S 2004 1999 2002 1998 2002 2002 2002 2002 2000 2001 2001 Non-financial assets - 64 76 68 43 72 72 57 70 65 70 Principal residence 56 60 74 64 39 69 64 53 69 64 68 Investment real estate - 16 17 27 13 22 30 14 8 17 Financial assets 99 90 86 92 50 81 99 79 80 83 91 Deposit accounts 99 88 78 91 - 81 99 59 76 82 91 Bonds 11 14 44 3 - 14 - 16 - - 19 Stocks 16 11 40 33 - 10 22 36 - 30 21 Mutual Funds 11 14 1 3 - 13 38 58 - - 18 Debt 39 68 65 52 30 22 80 70 59 68 75 Home secured debt 28 41 - 28 10 - - 39 - 46 Household asset participation (per cent)

22. Sample size and age composition of head of household in LWS surveys United Canada Cyprus Finland Germany Italy Norway Sweden US PSID US SCF Kingdom 1999 2002 2002 1998 2002 2002 2002 2000 2001 2001 Average unit size 2.43 3.35 2.16 2.14 2.65 2.14 1.96 2.35 2.38 2.43 Mean age 47 49 49 52 55 49 51 53 48 49 Age composition (%) 24 or less 5.9 1.0 7.3 3.7 0.7 7.2 6.6 3.8 5.3 5.6 25-34 19.6 21.3 16.7 15.2 9.4 19.3 16.9 14.3 18.6 17.1 35-44 24.7 24.7 20.0 20.6 21.5 19.4 17.7 19.3 22.2 22.3 45-54 19.6 16.9 21.0 17.5 18.8 18.0 17.5 17.4 22.4 20.6 55-64 11.9 15.4 13.8 16.5 16.9 14.1 16.6 14.9 12.5 13.3 65-74 10.4 15.0 11.7 14.9 18.2 9.8 10.9 14.0 10.9 10.7 75 and over 7.9 5.7 9.5 11.6 14.5 12.2 13.8 16.3 8.1 10.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

23. Fraction of holders, by age of the household’s heads(per cent) Source: LWS database, β-version and national sources.

24. Household portfolio composition (percentage share of total assets)

25. Distribution of household net worth (per cent)

26. Means and medians (2002 PPP dollars) Source: LWS database, β-version

27. Comparing results with secondary data

28. LESSONS FROM LWS PROJECT • A great deal can be learned from comparative analysis: cross-nationally comparable data on household finance is a priority • Many differences across countries: taking stock of what is available paves the way to a much needed process of ex ante standardisation • Perfect comparability not achievable – BUT large space for improvement • Need for a flexible approach: comparability across countries may mean to adapt to country specificities rather than imposing too stringent common frame • With caution, it is possible to perform many useful comparisons using the existing data

29. LWS GOALSWHERE DO WE STAND? • Built up within the Luxembourg Income Study (LIS) – www.lisproject.org following the same model. • Establish a network of experts of micro-data on household net worth to share accumulated knowledge and best practices • Construct a comparable database containing wealth variables based on existing datasets to enable cross-country comparisons on household net worth, portfolio composition and wealth distribution (including liquid assets, debts and other holdings) • Produce guidelines for data producers – similar to what has been done for income distribution statistics through LIS with the final Report of the Canberra Group

30. MANY THANKS FOR YOUR ATTENTION