The role of assets and their distribution: OECD initiatives to provide statistical guidance Marco Mira d’Ercole, OECD e-Frame Conference, Paris 26 – 28 June 2012

Outline of presentation  Motivation: why is information on the distribution of household wealth important?  Where do we stand: data availability, information gaps, ex post harmonisation and their limits  Looking at the future: ex-ante harmonisation, work by OECD Expert Group on Micro Statistics on Household Income, Consumption and Wealth 2

Motivation: why wealth matters conceptually?  Key factor shaping people’s consumption possibilities, i.e. economic well-being  Two keys recommendation of the Stiglitz et al. report: –Recommendation 2: Consider income and consumption jointly with wealth (addresses availability of Balance Sheet aggregate data within SNA) –Recommendation 3: Give more prominence to the distribution of income, consumption and wealth (addresses availability of household micro data) 3

Motivation: analytic and policy issues (1) 4  Monitoring the distribution of economic resources in each country: -wealth is much more unequally distributed than income -changes in wealth inequality are not always in the same direction as those for income inequality.  Monitoring the sustainability of economic growth: -SNA household balance sheets in the US did not highlight major imbalances, i.e. increasing share of households facing risks of negative equity in the event of lower house prices; micro data are needed to address these issues

Motivation: analytic and policy issues (2) 5  Monitoring household vulnerability (joint distribution matters) - Many household who are classified as non-poor based on their household disposable income, have financial assets insufficient to cover three months of subsistence consumption  Understanding how household wealth is accumulated: - in Italy, the share of intergenerational transfers in household wealth in 2002 was more than 50% (when accounting for interest earned on this wealth): implications for taxation, financing of old-age pensions and long-term care

Data availability (1)  Many countries produce (or are in the process of producing) micro statistics on household wealth (26 countries overall): huge difference relative to 1977  However, differences in concepts, sources, methods used to gather such information, e.g. –Coverage of wealth items (consumer durables, pension accounts) –Coverage of households (e.g. NPISH, unincorporated business) –Valuation criteria used (market prices, historic costs) –Point in time when wealth is measured (end-of-year, current) –Whether assets are recorded ‘gross’ or ‘net’ of the liabilities pertaining to them (e.g. net equity for housing wealth) –Unit of analysis for presenting statistics (e.g. households, people, adults) 6

Data availability (5)  Result of meta survey of country practices in whether wealth items, even when covered, are reported separately or combined in some wider category.

Ex post harmonisation of existing data (1) Some efforts to improve ex post comparability of country data on the distribution of household wealth:  Luxembourg Wealth Study: Contents harmonized in a common template, similar to that used for LIS datasets: but –Limited country coverage (12 countries, Australia, Canada, Cyprus, Finland, Germany, Italy, Japan, Luxembourg, Norway, Sweden, United Kingdom, United States) –Some wealth components available for one country but not for others (e.g. business equity). Implication:  comparability comes at prices of incomplete picture of hh wealth;  weight of omitted wealth items varies significantly across countries 8

Data availability (3)  Credit Suisse Global Wealth Database –Roots in the work done for UN-WIDER –Combination of SNA balance sheets, household wealth Survey and imputations, plus integration with “Rich Lists” 9

The case for ex-ante harmonisation  No international standards currently exist for micro statistics on household wealth  Demand for comprehensive statistics to understand households conditions, i.e. joint distribution matters  Integration with macro statistics OECD Committee on Statistics is taking conceptual and statistical leadership role in field of hh economic resources through an Expert Group charged with:  Developing framework for integrating micro data on income, consumption and wealth (conceptual and practical challenges for combining and analysing information on each dimension)  Agreeing definitions and best practices for micro statistics on distribution of household wealth, including review of practices 10

Preliminary recommendations (1)  Definition: “Wealth.. is value of all assets owned by a household less value of all liabilities at a given point in time”  Valuation: current value on the market, in principle  Time of recording: same point in time for all components and all assets, in principle  Close alignment with 2008 SNA (with some exceptions due to different analytical purpose. e.g. consumer durables)  Assets and liabilities recorded on a gross basis  Coverage: all resident private households  Household as the basic unit of analysis 11

Preliminary recommendations (2) 12  List of standard components of assets and liabilities

Timelines and next steps DateDeliverable 1- 3 Aug 2o12Address all remaining issues Aug - Nov 2012Editorial work to consolidate EG members’ contributions into two OECD publications Dec 2012 – Feb 2013Circulate drafts for CSTAT Delegates’ comments by end Jan 2013 Spring 2013Release of two OECD publications 13

For further information Marco Mira d’Ercole Bindi Kindermann Nicolas Ruiz 14