What about the periphery? Swedish wealth-income ratios in historical perspective

Wealth-Income Ratios in a Small, Developing Economy: Sweden, 1810–2014


Daniel Waldenström (Paris School of Economics and Research Institute of Industrial Economics daniel.waldenstrom@nek.uu.se)

ABSTRACT: This study uses new data on Swedish national wealth over the last two hundred years to examine whether the patterns in wealth-income ratios found by Piketty and Zucman (2014) extend to small and less developed economies. The findings reveal both similarities and differences. During the industrialization era, Sweden’s domestic wealth was relatively low because of low saving rates and instead foreign capital imports became important. Twentieth century trends and levels are more similar, but in Sweden government wealth grew more important, not least through its relatively large public pension system. Overall, the findings suggest that initial conditions and economic and political institutions matter for the structure and evolution of national wealth.

URL: http://EconPapers.repec.org/RePEc:hhs:uufswp:2015_006

Distributed by NEP-HIS on 2016-10-17

Review by Anna Missiaia

This paper looks at the evolution of wealth-income ratios in Sweden over the last two hundred years. Wealth-income ratios have gained increasing attention as an aftermath of the release of Capital in the 21st Century by Thomas Piketty as well as the more specific paper by Piketty and Zucman (2014). The trajectory of wealth-income ratios in core economies such as the US, the UK, Germany and France shows a U-shape pattern over the last two hundred years, with a level of 600-700% of wealth over income in the 18th and 19th centuries, a low point of 200-300% in the 1970s and a subsequent increase up to 400-600% today. The U-shape is, in the interpretation of Piketty and Zucman, the consequence of the two world wars and the creation of the welfare state while in the last decades we are seeing a reversal and a “return to historical norms”. The come back of capital is potentially interesting as wealth accumulation can have different effects on the economy and the society, depending on weather the additional wealth is in public or private hands. Also, the increase in wealth relative to income poses new questions on what the optimal taxation strategy should be. In terms of the scope of this line of research, at the end of their paper Piketty and Zucman call for a further effort to cover new and non-core countries in the analysis. Identifying the components of wealth driving the increase in the ratio is also a worthwhile next step.

The work by Walderström goes in this direction in two ways. First, it looks at a “small, developing economy” such as Sweden, which represents at least part of the periphery that is missing in previous research. Moreover, it discusses to some extent the determinants of Swedish wealth in comparison with other core countries, suggesting that the composition of wealth can dramatically change the interpretation of the ratio.

The inclusion of small economies in the analysis is important because theory predicts a different evolution of wealth-income ratios during industrialization depending on the size of the country.  In particular, large economies (like the ones studied by Piketty and Zucman) are expected to increase their wealth while small economies are expected to increase capital imports. Moreover, Sweden is an excellent case-study for looking at the effect of a social democratic welfare state and its political institutions on the accumulation of national wealth.

The empirical analysis in the paper is grounded on a new body of evidence that, as it often happens with Sweden, provides very detailed information compared to other countries. In this case, the Swedish National Wealth Database (SNWD)  provides information on the household sector, the public sector and national, private and public savings following the same structure of Piketty and Zucman (2014).


Swedish farmers before the creation of the universalistic welfare-state system

The results of the paper are the following: Sweden in the 19th century had a much lower ratio (about half) compared to core countries such as the UK, France and Germany but it had a very similar level compared to the US. The author then goes on and asks whether 19th century Sweden is really comparable to the US in terms of national wealth dynamics. The answer is no. Sweden had a low ratio because of its low level of savings due to low incomes. The US had a low ratio because of a high level of income growth that was dominating wealth growth. For this reason, Sweden had to rely much more heavily on capital imports to sustain its industrialization. The 20th century shows again a much lower ratio for Sweden compared to the core countries (this time both European countries and the US alike) but the explanation lays this time in the increasing role of the Swedish Government and the creation of the well-known universalistic welfare-state system which redirected resources from private wealth to provision of public goods. In this sense, the discussion on the emergence of the public pension system, which is neglected by the analysis of national wealth in core countries by Piketty and Zucman, is most interesting. In short, the argument is that creation of a public pension system with a large share of unfunded pensions financed by taxation led to a decrease in saving for retirement and thus wealth. The figure below shows the low ratio for Sweden over the last two hudred years.


Private welath-income ratios in comparison.

The main contribution of this work is showing that the patterns of core countries, that are often at the core of the research and speculation Piketty and coauthors, are far from being exhaustive in explaining national wealth at world level. Also, as the same wealth-income ratio can hide very different underlying structural differences, the use of a more detailed breakdown of public wealth that includes pensions is also much appreciated. On the other hand, it is clear that because of its very peculiar history (see the non-participation to the world wars and the early formation of such a strong welfare state) Sweden cannot be considered as fully representative of the entire periphery. More research on other countries is needed to capture the entire picture.



Piketty, T. (2014) Capital in the 21st century, Cambridge, MA: Belknap.

Piketty, T. and G. Zucman (2014) Capital is back: Wealth-income ratios in rich countries, 1700–2010, Quarterly Journal of Economics, 129(3): 1255–1310.

Waldenström, D. (2015), Wealth-income ratios in the small economy: Sweden over the past two centuries, Vox post, http://voxeu.org/article/wealth-income-ratios-small-economies




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