The Concentration of Personal Wealth in Italy 1995–2016

Acciari P., Alvaredo F., Morelli S., 2024 – Journal of the European Economic Association

Over the past decades, the concentration of income and wealth has risen in many advanced economies, reviving concerns about social cohesion, intergenerational mobility, and the success of redistributive policies. Understanding wealth concentration in a context of rising inequality have become increasingly central to both academic research and policy debate.

In a recent study, “The growing concentration of wealth in Italy: Evidence from a new source of data”, published in the Journal of the European Economic Association, Paolo Acciari, Facundo Alvaredo e Salvatore Morelli use a newly assembled micro dataset on the inheritance tax records in Italy to widen our knowledge on the distribution of wealth in the period between 1995 and 2016. The use of inheritance tax data increases the probability of better covering high-end wealth groups, despite the existence of tax avoidance and evasion behaviours. The data cover up to 63% of the deceased people over a period of substantial economic turbulence and structural reforms for the national economy.

The authors’ estimates suggest that the wealth share of the top 1% (half a million individuals) increased from 16% in 1995 to 22% in 2016; the share accruing to the top 0.01% (the richest 5,000 adults) almost tripled, increasing from 1.8% to 5%. Figure 1 shows a stark inversion of fortunes since 1995. The richest 0.1% saw a two-fold increase in their real average net wealth (from €7.6 million to €15.8 million at 2016 prices), making its share double from 5.5% to 9.3%. In contrast, the poorest 50% controlled 11.7% of total wealth in 1995, and only 3.5% recently; this corresponds to an 80% drop in their average net wealth (from €27,000 to €7,000 at 2016 prices). In 1995, the share of the middle 40% was very similar to that of the top 10%, but it declined over time by almost 5 percentage points instead.

The picture would be rather different had one look at similar estimates from household survey data (SHIW). According to the SHIW (Figure 2), the share accruing to the top 1% of has remained roughly unchanged between 1995 and 2016, at around 14%. This is also true once the survey-based calculations reflect the same unit of observation and similar wealth definition employed in tax-based data.

Several adjustments have been made to the data. First, real estate cadastral values have been brought in line with market prices. Second, the distribution of decedents needed to be reshaped into the distribution of identified living wealth holders through the application of the mortality multiplier method (i.e. multiplying the number of decedents and their wealth by the inverse of the mortality rate). Third, allowance must be made for the wealth of the unidentified population in the tax data. Fourth, imputations are needed to account for tax exempted assets, and for differences in valuation, and tax evasion. The benchmark approach adopted in this study is to distribute the full balance sheet of the household sector from the National Accounts.

The paper sheds light on the determinants of the wealth inequality trends revealed by the analysis, thus making important contributions to the literature.

First, age and life-cycle factors do not explain the current level of wealth concentration. Second, the heterogeneity of portfolios across the distribution influences the dynamics of wealth concentration (Figure 3). Whereas housing wealth plays a significant role for the middle 40% group, the accumulation of wealth at the top is primarily driven by financial and business assets. Moreover, changes in currency and deposits, along with increasing levels of indebtedness, contribute significantly to the net wealth dynamics of the bottom 50% group. Third, changes in total savings (defined as the sum of direct changes in the volume of indebtedness, deposits, and valuables, and any residual changes in the asset value that is not accounted for by changes in the asset prices) account for a very large portion of growth in net wealth, both in the overall population and within the top decile. Interestingly, this occurred despite a sustained declining trend in the saving capacity of households over recent decades.

Moreover, the analysis of the joint distribution of income and wealth also reveals that the probability of top 1% and top 0.1% of labor income earners climbing to the top 1% of the wealth distribution doubled between 2001 and 2014. Although changes to asset prices are not the predominant force behind the increase in wealth concentration, it is worth noting some interesting findings. In fact, little of the change in wealth recorded between 1995 and 2016 across the distribution can be attributed to changes in house prices. Lastly, the study reveals new evidence on the growing role of inheritance and gifts inter vivos as a share of national income, as well as their increasing concentration at the top. Associated to these trends, the authors estimate that wealthy inheritors were subject to an overall decreasing tax burden over the past 20 years. On the one hand, a lower proportion of inheritances generated by large bequests are subject to taxation today with respect to mid-1990s. On the other hand, the average tax burden of large bequests has also shrunk substantially over the same period of time, undermining the progressivity of the inheritance and gift tax. These changes in the patterns of wealth transfers and their impact on long-term wealth concentration dynamics have been overlooked in empirical studies.

This research highlights a substantial increase in wealth concentration and wealth inequality in Italy, and a dramatic decline of wealth shares held by the bottom groups of the adult population.

Growing wealth disparities in this scenario appear worrying on several grounds. First, rising wealth inequality may be coupled with growing financial vulnerability and insecurity for a vast number of adult individuals who have limited private financial resources to cushion adverse circumstances. Second, growing inequalities of wealth holdings can have corrosive effects on equality of opportunity when they turn into persistent disparities across generations.

Many have been debating and calling for policies to curb growing extreme inequalities, including new taxes on personal wealth. Yet, despite the growing policy interest, the knowledge about the size distribution of wealth is currently limited. It remains imperative to invest in official statistics to measure direct and indirect wealth holding and to shed further light on the main determinants of large fortunes and wealth concentration.