The Joint Distribution of Household Income and Wealth

This report looks at the extent to which household net worth and disposable income are correlated across individuals. After having briefly discussed the importance of better information on household wealth for social policies, the paper describes the main features of the Luxembourg Wealth Study – a collaborative project to assemble existing micro-data on household wealth into a coherent database that aims to do for wealth what the Luxembourg Income Study has achieved for income– and some of the basic patterns highlighted by these data, while noting the important methodological features that affect comparability. The main bulk of the report focuses on the joint distribution of income and wealth. While the comprehensive definition of wealth used (i.e. including business equity) allows covering only five OECD countries, the analysis uncovers a number of patterns. In particular, household net worth and disposable income are highly, but not perfectly correlated across people within each country. Many of the people classified as income poor do have some assets, although both the prevalence of holding and the amounts are clearly lower than among the general population. While part of the positive association between disposable income and net worth reflects observable characteristics of households, such as age and education of the household head, a sizeable correlation remains even after controlling for these characteristics.