Who pays the price of folly? : the business cycle and income and wealth mobility in Spain

Spain has experienced a dramatic business cycle, starting with a large construction based boom followed by a long recession, resulting in a substantial rise in unemployment, and income and wealth inequality. This paper uses longitudinal data from the Survey of Household Finances over the period 2002 to 2014 to examine the distributions of income and wealth in Spain, as well as the mobility of households within those distributions. Results show an increase in the concentration of both income and wealth following the sharp decline in house prices that occurred since 2008, with house price fluctuations affecting more negatively the young than the old. Furthermore, differences in average income and wealth by education, gender and home ownership status were accentuated during the crisis, with lower and middle group incomes falling on average and top group incomes rising. In addition, higher levels of mobility within the middle of the household wealth distribution are observed than at either the top or bottom, although mobility at the extremes of the distribution increased after 2008. Finally, a number of characteristics of households, including age, property ownership, being employed on a permanent contract and good health, are found to be positively associated with wealth accumulation over time, while having a mortgage is negatively related. Overall, the paper finds it is the young and those with low income, wealth and education, bad health, temporary contracts and a mortgage that became relatively worse off in Spain’s early 21st century boom and bust cycle. This Working Paper relates to the 2018 OECD Economic Survey of Spain (http://www.oecd.org/economy/spain-economic-snapshot)