Benefits of Collecting Household Wealth Data

mar. 19, 2024

Sweden ended its wealth tax in 2007 as part of tax reforms to boost investment and growth. As a result, it also marked an end to a database that recorded and tracked the assets and liabilities of Swedish individuals—an important resource for research and policy in financial markets and in the economy at large, academics say.

Sweden ended its wealth register after removing the wealth tax in 2007. This change was part of broader tax reforms aimed at encouraging investment and economic growth, as maintaining the wealth tax was seen as discouraging savings and investment, and potentially driving wealthy individuals and capital out of the country. Now, the Riksbank, the Financial Supervisory Authority, the Fiscal Policy Council, and many in academia are calling for the data to be collected again.

The proposed wealth register was recently publicly discussed by both the Swedish Minister of Financial Markets, Niklas Wykman, and the head of the Riksbank, Erik Thedeen. Wykman is scheduled to address the issue in parliament on March 19.

In 2022, researchers at the Swedish House of Finance (SHoF) were invited to provide input on the public inquiry titled "New Statistics on Household Assets and Debts". They argued that a new wealth register would be of great value to both Swedish economic policy and research. Below is a summary of their contribution:

Stress testing household finances

Access to detailed, high-frequency microdata is crucial for effective financial and monetary policy, a lesson from the 2008 financial crisis. The proposed wealth register would enable the Financial Supervisory Authority to conduct regular stress tests on household finances, identifying and mitigating systemic risks early.

For the banking sector, this proactive approach can prevent potential crises and recessions, with the benefits of continuous monitoring significantly outweighing the register's costs.

Benefits to research

Collecting household wealth data would greatly enhance Swedish macroeconomics and finance research. Currently, unlike its neighboring countries, Sweden relies on aggregated wealth data which limits analysis.

Without individual data, understanding the wealth distribution and quantifying the asset and liabilities of various societal groups of the population is impossible. This restriction impacts insights into the Swedish financial markets' operation, household resilience to economic shocks, and the financial system's overall stability.

High-Frequency Data

High-frequency data enhances research, allowing for detailed studies on individual responses to economic shifts, thereby improving economic policy forecasts. This data is crucial for monitoring, crisis management, and has proven invaluable, as seen with Statistics Sweden's (SCB) employment and VAT data during the COVID-19 pandemic.

Similarly, frequent wealth data collection would enable swift and effective responses during financial crises. The SHoF researchers support quarterly data reporting and even advocate for monthly reporting.

Importance of retroactive data

They also suggest collecting data from after 2007. Accessing this data, extending from 1999 to today, is highly valuable. It enables in-depth analysis of long-term savings trends and the impact of the 2008 financial crisis. This can inform future crisis management strategies and assess significant financial stability laws like loan-to-value ratios and amortization requirements.

Wealth registers elsewhere have spurred important research

Research on Danish data was able to identify which households do not renegotiate their mortgages and the costs of this mistake.

Norwegian researchers found that the wealthiest households earn as much as 18% more than the poor. They additionally found that household financial status influences spending behavior, affecting fiscal policy’s effectiveness.

In Finland, researchers identify that inheritances are invested very differently depending on household’s wealth level, contributing to additional economic disparity.

Individual financial security

Understanding Swedes' interactions with financial markets is vital for both financial stability and individual prosperity. Recently, individuals have gained more control over their finances and access to sophisticated savings tools. Without the statistics, it is challenging to analyze their use of these tools.

A detailed register would enable studies on portfolio diversification, risk-taking, losses to fund fees, and differences in financial behaviors across societal groups. This could illuminate the roots of financial inequality and guide educational efforts.

Value for Swedish capital markets

A large part of Sweden's housing is financed through domestic and international capital markets. Detailed wealth data can enhance market stability and financing conditions. Access to this information benefits various market segments, enabling valuable analyses for investors, financial institutions, insurers, and households.