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Saving and wealth in the context of extreme inequality

Orthofer, Anna Franziska (2017-12)

Thesis (DCom)--Stellenbosch University, 2017.

Thesis

ENGLISH SUMMARY : Saving and wealth are important determinants for the wellbeing of individual households and the development of whole economies. Unlike flow variables like income and consumption, however, balance sheet data on wealth have been collected only recently. Among the developing countries, South Africa has been the rst to publish ocial household sector balance sheets, one of the rst to conduct large-scale household wealth surveys, and one of the first to give researchers access to anonymised tax records. In this dissertation, I use these new data to study saving and wealth in the context of a developing country with extreme inequality. The rst chapter focuses on saving and studies how the balance sheet concept of saving (the change in wealth between two periods of time) differs from the flow concept (the residual between income and expenditure). It finds that household wealth has grown much more strongly over the last decades than would have been implied by the flow measure of saving alone, owing to sizeable capital gains on existing asset holdings. The second chapter puts this nding into an international perspective, tying it to the literature that developed from Thomas Piketty's influential Capital in the Twenty-First Century (2014). While Piketty nds that capital gains contributed to a strong increase in rich-world wealth-income ratios between 1970 and 2010, I find that a similar trend started only in the late 1990s in South Africa. I also nd that this trend was generated almost entirely through corporate savings and the strong performance of the stock market, which contrasts with the importance of household savings and house price developments in Piketty's sample of advanced economies. Since a large share of stocks are held through domestic pension and retirement funds, the appreciation of nancial assets has beneted millions of South Africans. Yet, it is very likely that the boom has enriched a small number of individual shareholders disproportionately. The third chapter thus takes a distributional perspective on wealth, using two distinct data sources to estimate the degree of inequality in the country. I compare a survey with 18,820 respondents in 6,450 households to a novel dataset of almost 1.2 million personal income tax records. Despite the differences in the coverage of each source, I nd robust evidence that wealth is much more unequally distributed than income. Ten percent of the population own more than 50-95 percent of all wealth, compared to a top labour income share of “only” 45 percent. While an income or consumption perspective thus allows us to speak of a South African middle class, the balance sheet data suggest that a propertied middle class is still largely non-existent.

AFRIKAANSE OPSOMMING : Besparing en rykdom is belangrike bepalers van die welstand van individuele huishoudings sowel as die ontwikkeling van ekonomieë in die geheel. Tog, in teenstelling met vloeiveranderlikes soos inkomste en verbruik, word balansstaatdata oor rykdom eers sedert betreklik onlangs ingesamel. Suid-Afrika was een van die eerste ontwikkelende lande wat amptelike balansstate vir die huishoudelike sektor gepubliseer, grootskaalse huishoudelike welvaartopnames gedoen, en navorsers toegang tot naamlose belastingrekords gegee het. In hierdie tesis gebruik ek hierdie nuwe data om besparing en rykdom in die konteks van ‘n ontwikkelende land met uiterste ongelykheid te bestudeer. Die eerste hoofstuk konsentreer op besparing, en bestudeer die verskille tussen die balansstaatkonsep van besparing (die verandering in rykdom van een tydperk tot ‘n volgende) en die vloeikonsep (die verskil tussen inkomste en uitgawes). Dit bring aan die lig dat huishoudelike rykdom oor die afgelope dekades veel sterker gegroei het as wat die vloeimaatstaf van besparing op sy eie sou aandui, as gevolg van beduidende kapitaalwinste op bestaande bates. Die tweede hoofstuk beskou hierdie bevinding uit ‘n internasionale hoek deur dit te koppel aan die literatuur wat uit Thomas Piketty se gesaghebbende Capital in the Twenty-First Century (2014) ontwikkel het. Terwyl Piketty vasgestel het dat kapitaalwinste tussen 1970 en 2010 tot ‘n sterk toename in rykdom-inkomsteverhoudings in die welvarende wreld gelei het, bevind ek dat ‘n soortgelyke tendens eers laat in die 1990's in Suid-Afrika posgevat het. Ek bevind ook dat hierdie tendens byna geheel en al deur korporatiewe besparing en die sterk prestasie van die aandelemark tot stand gekom het, in teenstelling met die belang van huishoudelike besparing en huisprysontwikkelings in Piketty se steekproef van gevorderde ekonomieë. Aangesien binnelandse pensioen- en aftreefondse oor ‘n groot aandeelhouding beskik, het miljoene Suid-Afrikaners baat gevind by die waardevermeerdering van finansiële bates. Tog het di voorspoedgolf heel waarskynlik ‘n klein getal individuele aandeelhouers buite verhouding verryk. Die derde hoofstuk beskou rykdom dus uit ‘n verdelingsoogpunt deur van twee verskillende databronne gebruik te maak om die mate van ongelykheid in die land te bepaal. Ek vergelyk ‘n opname van ongeveer 18 820 respondente in 6 450 huishoudings met ‘n nuwe datastel van bykans 1,2 miljoen persoonlike inkomstebelastingrekords. Hoewel die omvang en dekking van die databronne verskil, kom ek af op robuuste bewyse dat rykdom ongelyker verdeel is as inkomste. Tien persent van die bevolking besit meer as 90-95 persent van alle rykdom, vergeleke met ‘n topinkomste-aandeel van “slegs” 45 persent. Hoewel ‘n mens dus volgens ‘n inkomste- of verbruiksperspektief van ‘n Suid-Afrikaanse middelklas kan praat, dui die balansstaatdata daarop dat ‘n middelklas van eiendomsbesitters steeds grotendeels ontbreek.

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