October 6, 2020
Written by WID.world

Why Is Europe More Equal Than the United States?

Why Is Europe More Equal Than the United States?

In this paperThomas Blanchet, Lucas Chancel, and Amory Gethin combine all available household surveys, income tax, and national accounts data in a systematic manner to produce comparable pretax and post-tax income inequality series in 38 European countries between 1980 and 2017. Their estimates are consistent with macroeconomic growth rates and comparable with US Distributional National Accounts.

Key-results:

  • Inequalities rose in most European countries since 1980 both before and after taxes, but much less than in the US.
  • Between 1980 and 2017, the European top 1% pre-tax income share rose from 8% to 11% while it rose from 11% to 21% in the US. Europe’s lower inequality levels are mainly explained by a more equal distribution of pretax incomes rather than by more equalizing taxes and transfer systems.
  • “Pre-distribution” is found to play a much larger role in explaining Europe’s relative resistance to inequality than “redistribution”: it accounts for between two-thirds and 90% of the current inequality gap between the two regions.

>> Click to see inequality data by region

Figure – Why Is Europe More Equal Than the United States?

This figure shows the distribution of pretax income growth in Europe and the United States between 1980 and 2017.

The distribution of pretax income growth in Europe and the United States, 1980-2017

Recommendations:

Inequality policies in Europe should aim at addressing the inequalities of income before taxes and transfers, in addition to redistributing pretax income. The reduction of inequality among European citizens also requires lowering income disparities within countries, and not only between them.

Contacts

Authors

Media inquiries

  • Olivia Ronsain: olivia.ronsain@wid.world; +33 7 63 91 81 68

 

This is a revised version of a paper that was previously circulated under the title “How Unequal Is Europe? Evidence from Distributional National Accounts, 1980-2017

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