Rising inequality in Switzerland
Aug 2021
Jump directly to
Interview with Florian Scheuer
The unequal distribution of wealth has been further exacerbated by the Corona pandemic in Switzerland, says economics professor Florian Scheuer in an interview with AWP Soziale Sicherheit. This can lead to increased relative poverty.
This interview was conducted by Simon Stahl and originally published in AWP Soziale Sicherheit, 13/2021 in German.
Private wealth in Switzerland has doubled since the turn of the millennium. Are we getting richer and richer?
Florian Scheuer: Yes, this is shown both by the wealth data per capita and in relation to GDP. To a considerable extent, the increase in wealth is due to the fact that Switzerland was able to grow much more strongly than other countries in the aftermath of the financial crisis.
What are the reasons for this?
Florian Scheuer: Savings rates have increased, but real estate prices in particular have risen tremendously in this country compared to international standards.
How much wealth in Switzerland is liquid?
Florian Scheuer: About a quarter is tied up in pension plans such as pension funds. Almost half of the assets are real estate. And the rest, while considered liquid, goes mostly unspent, which can be seen in the increasing inheritances.
The wealth per capita in Switzerland is just under half a million Swiss francs - we are rich.
Florian Scheuer: This is of course only an average value. Many people have much less and very few have much more. The median is much lower. According to the latest Credit Suisse Global Wealth Report, it's around 135,000 Swiss francs. And in the US, it's relatively close to zero. So half of the U.S. population has no assets or even debt, although per capita wealth also averages around half a million U.S. dollars. Generally speaking, by international standards, wealth is also distributed relatively unevenly in Switzerland.
Here, the foundation of wealth is “concrete gold”. Could this wealth bubble burst soon?
Florian Scheuer: Regulation in Switzerland is very strict. But the high affordability rules in Switzerland currently exclude many people from buying real estate because their income is too low.
So a secure real estate market simultaneously means that hardly anyone can afford real estate anymore?
Florian Scheuer: Yes, this trade-off means that we still have a relatively high rental market meaning a large proportion of people were excluded from benefiting from the high price increases in real estate over the past 20 years. The rich, on the other hand, benefit even further because they can capitalize on the current interest rate environment to refinance new real estate.
The gap between wealth levels has widened and continues to widen. What tools could be used to change this?
Florian Scheuer: In Switzerland, it still makes a tax-relevant difference whether income comes from wage labor or from capital gains. Since capital gains are tax-free in Switzerland, reference is often made to wealth tax, which is supposed to act as a compensation. However, this is so moderate in most cantons that no significant redistribution of wealth takes place.
Has the pandemic exacerbated existing trends in wealth inequality?
Florian Scheuer: Most definitely. Big capital has weathered the crisis better than the small saver. Around the world for example, smaller fortunes have had to be tapped into because of wage shortfalls. Large fortunes, on the other hand, have tended to grow even more.
Would a heavier tax on capital income alleviate inequality?
Florian Scheuer: That would be conceivable since capital income is concentrated among the super-rich.
The unequal distribution of wealth has been further exacerbated by the Corona pandemic in Switzerland, says economics professor Florian Scheuer in an interview with AWP Soziale Sicherheit. This can lead to increased relative poverty.
This interview was conducted by Simon Stahl and originally published in AWP Soziale Sicherheit, 13/2021 in German.
Private wealth in Switzerland has doubled since the turn of the millennium. Are we getting richer and richer?
Florian Scheuer is Professor of Economics of Institutions at the University of Zurich. His areas of expertise include economic inequality, political economy and tax policy.
Contact
UBS Foundation Professor of Economics of Institutions
Florian Scheuer received his PhD from MIT in 2010. He is interested in the policy implications of rising inequality, with a focus on tax policy. In particular, he has worked on incorporating important features of real-world labor markets into the design of optimal income and wealth taxes. These include economies with rent-seeking, superstar effects or an important entrepreneurial sector, frictional financial markets, as well as political constraints on tax policy and the resulting inequality. His work has been published in the American Economic Review, the Journal of Political Economy, the Quarterly Journal of Economics and the Review of Economic Studies, among other journals. In 2017, he received an ERC starting grant for his research on “Inequality - Public Policy and Political Economy.” Before joining Zurich, he was on the faculty at Stanford, held visiting positions at Harvard and UC Berkeley and was a National Fellow at the Hoover Institution. He is Co-Editor of Theoretical Economics and Member of the Board of Editors of the Review of Economic Studies. He is also a Co-Director of the working group on Macro Public Finance at the NBER. He has commented on tax policy in various US and Swiss media outlets.
UBS Foundation Professor of Economics of Institutions
Florian Scheuer received his PhD from MIT in 2010. He is interested in the policy implications of rising inequality, with a focus on tax policy. In particular, he has worked on incorporating important features of real-world labor markets into the design of optimal income and wealth taxes. These include economies with rent-seeking, superstar effects or an important entrepreneurial sector, frictional financial markets, as well as political constraints on tax policy and the resulting inequality. His work has been published in the American Economic Review, the Journal of Political Economy, the Quarterly Journal of Economics and the Review of Economic Studies, among other journals. In 2017, he received an ERC starting grant for his research on “Inequality - Public Policy and Political Economy.” Before joining Zurich, he was on the faculty at Stanford, held visiting positions at Harvard and UC Berkeley and was a National Fellow at the Hoover Institution. He is Co-Editor of Theoretical Economics and Member of the Board of Editors of the Review of Economic Studies. He is also a Co-Director of the working group on Macro Public Finance at the NBER. He has commented on tax policy in various US and Swiss media outlets.