Economía del bienestar; Desigualdad económica; Distribución de la renta; Suecia;

Prados de la Escosura, Leandro

English

Research Papers in Economics

BOOK REVIEWS
Daniel Waldenstro ¨m, Lifting All Boats? The Evolution of Income and Wealth
Inequality over the Path of Development, Lund Studies in Economic History 51,
Lund, Lund University, 2009, 265 pp., ISBN 978-91-628-7924-2.
Has Sweden been historically an egalitarian society, or is low inequality the outcome
of an early introduction of the welfare state? This is the question that drives this
important research monograph. In his thesis, Waldenstro ¨m applies the top income
and wealth shares approach promoted by Thomas Piketty, Anthony Atkinson,
Emmanuel Saez, to the case of Sweden (Atkinson and Pikettty, 2007; Piketty and
Saez, 2006). This approach draws from the work of Simon Kuznets (1953) who used
personal tax returns as tabulated distributions, available in most countries for long
periods, and which was developed as an attempt to elaborate methods to analyse
inequality trends. Initially, these methods applied to OECD countries during the
twentieth century, but have gradually been extended to a growing number of
developing countries. By providing homogeneous and (largely) comparable measures
in the absence of aggregate inequality estimates it represents a significant contribu-
tion to the study of long-run inequality. In his thesis, Daniel Waldenstro ¨m explores
this topic by using all the available archival and library records in avery efficient and
imaginative way. The outcome is a collection of seven papers, some of them co-
authored, dealing with Swedish inequality in a comparative perspective, which are
held together by an introductory chapter. The time span considered covers the last
quarter of the nineteenth century and the whole twentieth century.
The literature on top income shares provides a set of explicit hypotheses that can
be confronted with evidence for the case of Sweden. (1) A drop in income
concentration took place in the first half of the twentieth century as a result of a
fall in top capital incomes due to destruction, inflation, bankruptcy, and fiscal and
monetary policies to finance war debts. (2) The drop in top shares was larger in war-
hit countries. (3) Progressive income and estate taxation impeded a recovery of top
income shares during the second half of the twentieth century (or, at least, until the
1970s). (4) A discrepancy is found between continental European and Anglo-Saxon
countries for the late twentieth century. While in the former, relative stability
followed a period of falling top income shares in the 1960s and 1970s, in the latter a
substantial increase in top income shares emerged since the 1980s, mainly driven by
large increases in top wages.
Since Sweden did not participate in the First World War and was non-belligerent
in the Second World War, she provides a good test to the general hypotheses from the
Atkinson-Piketty project. Waldenstro ¨m’s findings exhibit coincidences but also
interesting discrepancies with Atkinson and Pikettty (2007). For example, the
income share of the Swedish top decile (and even more the top 1%) dropped sharply
over the first 80 years of the twentieth century, and more intensively than in most
Scandinavian Economic History Review
Vol. 59, No. 1, March 2011, 8398
ISSN 0358-5522 print/ISSN 1750-2837 online
DOI: 10.1080/03585522.2011.541126
http://www.informaworld.com
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1developed countries  even though Sweden was not engaged in the Second World
War and, hence, did not experience its devastating effects on top income shares.
Moreover, most of this top income share decrease occurred prior to the expansion of
the welfare state so, by 1950, top income shares were lower in Sweden than in other
countries studied. Most of this early decrease in inequality seems to have been driven
by a fall in capital income, although, since the mid-1930s, wage compression also
contributed to explaining the decreasing top shares.
As regards the late twentieth century behaviour, Waldenstro ¨m points out that the
evolution of top income shares was very different depending on whether capital gains
are included or not. When included, Sweden’s experience resembles that of the US
and the UK with sharp increases in top incomes. Excluding capital gains, Sweden
looks more like the continental European countries, where top income shares have
remained relatively unaltered.
A most interesting contribution of the volume is the analysis of the determinants
of inequality, explored on the basis of a panel of 16 countries during the twentieth
century. It comes out that inequality increases as growth accelerates and financial
development deepens, while it declines as progressive taxation is introduced.
In the classical economists’ view, personal wealth was an important component
of a person’s well-being. Interestingly, Waldenstro ¨m also looks at top wealth shares.
In Sweden, pre-industrial wealth concentration was high and it did not change much
during early industrialization. In the post-war period, the top decile lost out relative
to the rest of the population. Around 1980, wealth compression stopped and
inequality increased. For Sweden, as for other western countries, our author finds a
sustained decline in wealth shares of the top percentiles over the twentieth century,
although a large variance is found for the nineteenth century.
The resilience of inequality, so often neglected in the historical literature, is also
addressedbyourauthor,whotriestofindoutwhetheritresultedfromeitherinequality
of outcomes or inequality of opportunities. From an innovative investigation about
intergenerational mobility in Swedish earnings and income distribution, he concludes
that the higher up in the distribution, the lower the mobility.
Some shortcomings are, nonetheless, observed in what otherwise is a model
monograph. For example, although Chapter 1 and the common list of references
provide some sense of unity, the reader wishes the author would have gone the extra
mile to avoid duplications by properly cross-referencing each chapter to others and
not to already-published papers. The repetition of methods, procedures, sources’
description, etc, is certainly annoying. Furthermore, the results from different
chapters are not cross-checked. Why are trends in income and wealth inequality not
compared? Much could be learnt from this. In fact, the results obtained through the
top income (wealth) share approach are hardly compared with those resulting from
more conventional or historical approaches (household surveys for the late twentieth
century or short cut methods for the nineteenth and early twentieth century, i.e.
wage/land rent ratios, the Williamson index) (Williamson 1997, 2002). In other
words, there is no attempt to assess critically the significance of the top incomes
share approach in terms of inequality description. Further, a concluding chapter,
wrapping up the findings and suggesting a research agenda, is missing in the
dissertation. Finally, the reader misses an exploration of the connections between
income and wealth inequality in, and long-term economic development in, Sweden,
as the author promises in the title.
84 Book Reviews
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1All in all, this volume represents a substantial contribution to the knowledge of
long-run inequality in a successful national experience and provides a model for
further country studies.
Notes
1. A.B. Atkinson and T. Piketty, Top Incomes over the Twentieth Century (Oxford: Oxford
University Press, 2007).
2. S. Kuznets, Shares of Upper Income Groups in Income and Savings (New York: NBER,
1953).
3. T. Piketty and E. Saez, ‘The evolution of top incomes: a historical and international
perspective’, American Economic Review. Papers and Proceedings 96, no. 2 (2006): 2005.
4. J.G. Williamson, ‘Globalization and inequality, past and present’, World Bank Research
Observer 12, no. 2 (1997), 11735.
5. J.G. Williamson, ‘Land, labor, and globalization in the Third World, 18701940’, Journal of
Economic History 62 (2002): 5585.
Leandro Prados de la Escosura
Universidad Carlos III, Spain
Email: leandro.prados.delaescosura@uc3m.es
# 2011, Leandro Prados de la Escosura
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Lifting all boats? : the evolution of income and wealth inequality over the path of development [book review].

http://e-archivo.uc3m.es/bitstream/10016/11303/1/lifting_prados_SEHR_2011.pdf

Lifting all boats? : the evolution of income and wealth inequality over the path of development [book review].

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Research Papers in Economics