Income inequality

This week the OECD released an update of their income inequality statistics which was covered in an article by Dan O’Brien in yesterday’s Irish Times.  For household disposable income Ireland is not unusually unequal.

  • Gini co-efficient: Ireland 0.307 versus OECD average of 0.313
  • 90/10 income share: Ireland 7.5 versus OECD average of 9.4

Under both measures Ireland is less unequal than the OECD average.  Data is for 2010 except for 2009 data from Hungary, Ireland, Japan, New Zealand and Turkey, and 2011 data from Chile.

The OECD dataset also includes a gini-coefficient for direct income (i.e. household income prior to taxes and transfers).  Direct income includes employee earnings, employer social insurance contributions, self-employed earnings and other direct income.  There is no data for Hungary, Mexico or Turkey.  The following chart has the most recent figures (mainly 2010) for this gini coefficient (most equal first).

For the 31 countries shown, Ireland has the highest level of inequality for direct income, and by some distance. The (2009) Irish figure is 0.591 compared to an arithmetic average for the sample of 0.470. 

Charts showing the impact each country’s tax and transfer system has on the gini coefficient and the resulting gini coefficients for household disposable income are below the fold.

Ireland’s tax and transfer system has the biggest point-score impact on the income gini-coefficient which gives rise to the following set of gini-coefficients for household disposable income (with Ireland now placed 17th of the 31 countries in the initial chart).

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14 thoughts on “Income inequality”

  1. Looks like evidence, for the doubters, that Ireland really does have the most progressive direct taxation / transfers system in the OECD.

    I wonder if there is anything in the idea that we have exceptionally high direct income inequality precisely because (benchmarked against other OECD countries) we have provided large subsidies to people on low incomes for perhaps the last 10 or 15 years?

  2. What effect is the ruling unconstitutional of the Registered Employment Agreements likely to have on this picture?

  3. @BeeCeeTee: how about the reverse? We need such progressive taxation and large transfers because of the huge pay differentials.

  4. An enormous unemployment problem will make pre-transfer income disparities larger and post-transfer income disparities smaller. Unfortunately that’s nothing to boast about.

  5. @Garo,
    I think the progressive approach to taxation came first.

    The progressiveness of our income tax system was fairly normal up to around the mid to late 1990s, and to the best of my memory we were not extreme outliers on income equality. We then went through a succession of adjustments to the income tax system that progressively reduced direct taxation on low earners close to zero, dropped direct taxation on middle income earners steeply, held direct taxation on upper middle income to high income earners roughly steady, and created lots of tax shelters for very high earners. The result was a system of direct taxation that was very progressive, except with a get-out for very high earners.

    In parallel, we increased the generosity of our system of transfers to people on lower incomes.

    We then increased the elasticity of supply of labour by opening up access to the Irish labour market to new EU accession states. The profile of our immigrants may well have responded to the incentives inherent in our tax and transfers system, which favoured low paid workers.

  6. i would be interested in The pre-tax Gini from 1999 then. Do you have evidence that it was substantially smaller than it is now?

    Also the point about unemployment is a good one.

  7. Hi Garo,

    No direct evidence. An OECD document I found that included historical data on both pre-tax and post-tax income inequality left the pre-tax entry for Ireland blank, so I think that data may be hard to come by.

    Indirect evidence is that back when Ireland had a normally-progressive system of direct taxation/transfers it had a non-extreme Gini coefficient of about .34.

  8. What’s the spousal income correlation like in Ireland compared to other countries? If it’s low, that will reduce household inequality. Plus I believe Ireland has a relatively young population – i.e. fewer pensioners, which will also reduces inequality.

  9. @Seamus Coffey

    “For the 31 countries shown, Ireland has the highest level of inequality for direct income, and by some distance. The (2009) Irish figure is 0.591 compared to an arithmetic average for the sample of 0.470. ”

    Ta for that – supports me intuitive. Present gov policy is making this situation worse …. not to mention the lumpen 64 Billion Euro lumped on the backs of the lumpen proles …. republic how are ya?

  10. @ david O’Donnell
    political scientist Earnst Hillebrand “Paradoxically, the European left has paid relatively little attention to the question of direct income distribution in the past decades. It has instead focused its political zeal on public services and the “compensatory” redistributional activities of the state, supposed to repair the most negative effects of the primary distribution within the economic sphere.

    In this logic, not the primary distribution of wealth and value added, but the rate of government consumption to GDP and taxation rates are set Yet, this concept is becoming increasingly contradictory: Despite rocketing profits, taxes on capital, profits and revenues are contributing less and less to finance the welfare system and the public sector. Instead, it is increasingly the “average” population that has to assume the fiscal burden of welfare systems and public spending.en as the central indicators of a socially balanced market economy.”

    Could not have said it better myself! It is the the primary income that is the determinant of “inequality” not the so-called “redistributions” following determination that one is so badly paid that they needs a FIS or being unemployed… a jobseekers allowance.

    Consequently, as Seamus points out our INEQUALITY is off the Richter scale. We are an outlier of the worst sort imaginable. Why did Dan O’ Brien of the Irish Times fail to examine this issue?

  11. @BeeCeeTee

    So you basically have no evidence for your assertion that a hyper-progressive taxation/welfare system caused the hyper-unequal pre-tax income distribution. Shades of R&R?

  12. @Garo,
    I started by saying “I wonder if there is anything in the idea …?”, not by asserting that conclusion. You questioned this, so I provided the evidence that I have. It is certainly not conclusive, but it is also certainly not “no evidence.

  13. @Robert Browne

    “Despite rocketing profits, taxes on capital, profits and revenues are contributing less and less to finance the welfare system and the public sector. Instead, it is increasingly the “average” population that has to assume the fiscal burden of welfare systems and public spending.”

    Very plausible – could be Oirland! Is Ireland.

  14. Robt,
    It is the top 20% of households that bear moat of the burden. They have seen the biggest increases in taxation to the point where they are the only ones who pay more to the exchequer than they receive in transfers. The other group who have carried more tnan their fare share are the post bubble unemployed. Those who were on the public payroll in some fashion at the bust have been relatively sheltered.

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