Monday, August 06, 2007

Income Inequality

We hear a lot about "the gap between rich and poor" but how big is it in reality, and how large is it compared to other major European nations? There are two ways to judge the gap - the gap in income between the top quintile and the bottom quintile, and the gap in capital assets between the top quintile and the bottom quintile.

Eurostat monitor the income inequality gap across Europe, calculating the ratio between the total income of the 20% of the population with the highest income (top quintile) to that received by the 20 % of the population with the lowest income (lowest quintile). Income is defined as disposable income, i.e. after tax income. The last figures they have are for 2005. The higher the ratio, the higher the income gap - eg a ratio of 5 means that the top quintile has 5 times more income than the bottom quartile. The EU 15 countries in the following table comprise the old Western Europe prior to enlargement.

Income Inequality
ratio in

EU 25 countries 4.9
EU 15 countries 4.8
Germany 4.1
France 4.0
Ireland 5.0
Italy 5.7
Spain 5.4
Sweden 3.3
UK 5.5

The UK isn't that far off the EU average, and the gap hasn't
really grown much - the ratio was 5.2 in 1994. Sweden's ratio is low - but is a reflection of how hard they tax the rich, as the ratio is based on disposable income. The income gap between rich and poor in the UK isn't as drastic as popular mythology would have it.

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