Thomas Piketty Paris School of Economics OECD, January 16 th 2014

1. Measuring inequality Issues to be addressed by the HLEG subgroup on income and wealth inequality Thomas Piketty Paris School of Economics OECD, January 16th 2014

2. « Work under the “income and wealth inequality” theme would take stock of measurement issues on the distribution of household income and wealth, such as developments at both the top and bottom of the distribution, the relation between household income and wealth and other aspects of economic well-being (e.g. consumption), and the broad range of policy issues that better measures in this field would allow addressing » Presentation note of the High-Level Expert Group (HLEG) on the Measurement of Economic Performance and Social Progress, August 2013

3. A general question that I wouldlike to ask to the group: canweenvisiona realistic plan and timetablefor harmonized, annual, global « distributional national accounts » (DINA) ? • The DINA agenda = take the definitions of national income and national wealth as they are (say, SNA 2008), and try to decomposeaggregateincome and wealth by percentile of income and wealthshares in a consistent, systematic, credibleand annualmanner→ official, annualdecompositions of growth by social groups • It willprobablytake a long time beforewe are able to develop official, consensualDINAs; for manyyears to come – and maybeseveraldecades–, inequalitystatisticswillstillbeproduced by various groups of people – academics, statisticalinstitutes,.. – usingvarious sources and methods; and thatisfine • But, in anycase, itisuseful to think about what’smissing for DINAsto exist, and about a possible plan/timetable to makeprogress

4. It took a long time (≈1910s-1950s) beforescholars – Kuznets, Kendrick, Dugé.. – could hand over the computation of national income and GDP to official institutes • It alsotook a long time (≈1950s-2000s) before official national accountswere able to includestandardized stock accounts (first consistent guidelines for balance sheets - assets and liabilities - appear in SNA 1993, 2008; in somekey countries like Germany, first consistent official balance sheetreleased in 2010) • Maybeitwilltake as much time (2010s-2050s?) to develop concepts and methods for inequalitymeasurementthat are fullystandardized and consistent with national accounts; but itisworthtryingmoving in this direction

5. Promises and pitfalls in inequalitymeasurement • Muchprogress has been made atcollectinghouseholdsurveys: - LIS (incomesurveys, 40 countries, 1968-2010) (as of Jan.15th 2014) - LWS (wealthsurveys, 12 countries, 1994-2007) - WB LSMS (income/expendituresurveys, 39 countries, 1985-2012) • But thesesurveys are still not annual and homogenous • Also, self-reportedsurvey data raisesbigproblemsat the top: in many countries, the richestindividuals in surveys are unplausiblypoor (say, <5-10 times averageincome), whichbadlyhurts the credibility of official statistics in general → the growththat people seearoundthemcansometimebeverydifferentfrom the growththeyhear about in official GDP stats

6. Somelimitedprogress has been made with the WTID: usingtax data and national accounts data in a consistent manner (Kuznets 1953), annualserieswereconstructed for top decile and percentile incomeshares(28 countries, 1870-2012, Atkinson-Alvaredo-Piketty-Saez and 30+ others) (seehttp://topincomes.parisschoolofeconomics.eu) • These top sharesestimatesare more crediblethansurvey-basedestimates and have contributed to reshape public debate: see US serieswith Saez; or IndianserieswithBanerjee(missinggrowth) • But theyare stillveryimperfect. In particular, they are not fully consistent with national accounts. They deal with the distribution of taxable income, not national income. Missingtax exempt capital income. Missingtax exempt transfers. • Nextstep: combine taxandsurvey data and national accounts in a more systematicway (imputation methods) (on-goingwork on US)

9. Fromincome to wealthinequality • Pioneeringwork by Davies, Shorrocks et al, «The level and distribution of global householdwealth », EJ 2011 (thispursues the work of Bourguignon, Milanovic on the global income distribution) • Seealso « Credit Suisse Global Wealth Reports », etc. • These reports combine survey data with national accounts, tax data and other sources (Forbes rankings etc.) in a pragmaticmanner… • … maybetoopragmatic, and not sufficientlysystematic: at the end of the day, Forbes-type or Credit Suisse-type top 1% wealthsharesmay not bemore reliablethansurvey-based top 1% estimates • There’s a huge social demand for wealthmeasurement; weneed to respond to it in a rigorous and systematicmanner • One ought to startfrom national accounts: wenow have consistent balance sheets for mostrich countries; seerecentwork on national wealth/national income ratios with Zucman

12. The right approach to inequalitymeasurementshould: • Combine administrative fiscal data on income and wealth and self-reportedsurvey data in a systematic, consistent and pragmaticmanner, justlike national accounts • Developstatisticalmatching techniques to createsynthetic files using the relevant information fromeach data source • Anchor all income and wealthaggregates to national income and wealth (itisalwaysbetter to make explicit assumptions about imputations than to leavethemimplicit = whatwe do implicitelywhenwe do not anchorincome and wealthaggregates) • With Saez and Zucman, wetry to followthisapproach to construct consistent « Distributional National Accounts » for US and France, and both for income and wealth (in-progress, 2014; = verypreliminary and exploratory, to bebepresentedat future meetings of HLEG) • Can thisbe made more systematic and lessexploratory?