Distribution of wealth across countries

Understanding how wealth is distributed in a society is imperative to evaluating broadly the quality of living of its people. Utilising the Wealth Distribution Database of OECD (developed) countries, Balestra et al published a comprehensive report on wealth and income distribution.

Wealth inequality, which is the net wealth held by the top 10% of the people in the income distribution, is twice the level of income inequality on average. Wealth inequality is the highest in USA, Netherlands, and Denmark, and lowest in Slovakia and Japan.

The mean net wealth per household was the highest in Luxembourg, USA, and UK, and lowest in Latvia, Chile, and Hungary. This data is visualised in the graph below.

The Gini coefficient isn’t the best indicator of income inequality due to a large number of households with negative net wealth. However, the ratio between mean and median net wealth provides a simple, useful metric to measure wealth inequality.

Large differences between the mean and median wealth indicate higher levels of inequality. Based on this measure, wealth inequality is the highest in US and Netherlands, where this ratio > 8. This data is visualised below.

Though the US has the highest mean net wealth, it is ranked 21st in terms of the median net wealth. This indicates a heavy skew towards the right-end of the tail of their income distribution. The wealth of the ultra-rich increases the mean when the median, representing the wealth of the typical household, remains lower.

Another way to study the wealth distribution is to look at the wealth proportions held by the top 10%, 5%, and 1% of households. The table below details this alongside the wealth of the bottom 40% and 60%.

The richest 1% of the US endow 42% of the country’s total wealth, and the bottom 60% total to only 2% of US’ wealth, making US the most unequally distributed country. The largest proportions of wealth owned by the top 10% are of US (79%), Netherlands (68%), Denmark (64%), and Latvia (63%).

The negative values in the table indicate that the liabilities (such as debt) exceed the value of their assets. The share of wealth owned by the bottom 60% of the households is negative for Denmark (-3.9%) and Netherlands (-4%).

The disparity of financial assets (such as shares, investment funds; excluding property) between the bottom 20% and top 20% is even larger. For example, the top 20% in the US have about 525 times the financial wealth of the bottom 20%, and in the UK, it’s 405 times.

The report also publishes an interesting plot (seen below) visualising the share of households owning their home fully against the mean to median ratio.

The share of wealth owned by the top 10% households income-wise is different from and lesser than the share of wealth owned by the top 10% wealth-wise. This is visualised below. The correlation between wealth and income varies across countries, and it’s the lowest in Netherlands, Denmark, and Japan, and highest in Canada and Korea.

In Denmark, the share of net wealth held by the top 10% of the wealth distribution is three times that of the top 10% share of income (64% and 22% respectively). Based on this, Denmark has a low level of income inequality but the third highest level of wealth inequality.

Debt deflates net wealth, and can affect wealth distribution. These are countries plotted by their median debt to income ration. The y-axis is in percentage, so, 100 means a ratio of 1:1. This ratio is the highest in Portugal and Norway.

A confluence of factors is responsible for the wealth distribution in a society. Cross-country differences in household wealth are attributed to unexplained country-specific effects. Attributes such as age, income, and household composition aren’t enough to explain cross-country differences.