The distribution of wealth

The risk of poverty, as conventionally measured, and indicators of inequality tend to be based solely on estimates of annual household income and take no account of accumulated wealth or of the effect of this on purchasing power and living standards. This is a potentially serious source of distortion, which is liable to result in misleading conclusions as regards the extent of inequality and the relative number of people at risk of social exclusion (with obvious implications for policy).

The understanding of differences in economic well-being can be enhanced by including an additional dimension - wealth. The stock of wealth is important in explaining the level of consumption of goods and services. It can also serve as a source of reserve funds, allowing for consumption 'smoothing' during periods of income fluctuation. An analysis of cross-country levels and distribution of wealth is an important complement to an analysis of income and its distribution.

Estimating the scale of wealth in different EU countries and its distribution between individuals and households has, of late, increased in importance, in the wake of several developments: the sharp rise in stock and house prices, followed by a dramatic collapse in many countries; the shrinking of the welfare state, which has shifted risk from governments to individuals; and reforms to health insurance and retirement schemes.

One of the main difficulties of analysing wealth is a lack of data, which are difficult to collect and therefore sparse. Statistics that are comparable for different countries are especially problematic because of differences in definitions and measurement conventions.

Particular features of the distribution of wealth (such as large numbers of households with zero or negative values and skewness) provide an additional challenge. Nevertheless, efforts have been made in recent years to compile comparable data. Examples include the research undertaken as part of the Luxembourg Wealth Study (Sierminska et al., 2006); the Survey of Health, Ageing and Retirement in Europe (SHARE)[1] for the population aged 50 and over; and, in the future, the Household Finance and Consumption Survey.[2] 

[1] http://www.share-project.org/

[2] http://www.ecb.int/home/html/researcher_hfcn.en.html