High household wealth is often cited as a key strength of the Italian economy. Both in
absolute terms and relative to income, the Italian household sector is wealthier than most
euro area peers. A sizable fraction of this wealth is held by the rich and upper middle classes.
This paper documents the changes in the Italian household sector’s financial wealth over the
past two decades, by constructing the matrix of bilateral financial sectoral exposures.
Households became increasingly exposed to the financial sector, which in turn was exposed
to the highly indebted real and government sectors. The paper then simulates different
financial shocks to gauge the ability of the household sector to absorb losses. Simple
illustrative calculations are presented for a fall in the value of government bonds as well as
for bank bail-ins versus bailouts.
Andreas Fagereng, Luigi Guiso, Mr. Davide Malacrino, and Luigi Pistaferri
We provide a systematic analysis of the properties of individual returns to wealth using twelve years of
population data from Norway’s administrative tax records. We document a number of novel results.
First, during our sample period individuals earn markedly different average returns on their financial
assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second,
heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe
and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively
correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution
increases the return by 3 percentage points - and by 17 percentage points when the same exercise is
performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time.
We argue that while this persistence partly reflects stable differences in risk exposure and assets scale,
it also reflects persistent heterogeneity in sophistication and financial information, as well as
entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the
implications of these findings for several strands of the wealth inequality debate.