The Conference Board released a study on trends in inequality, so I decided to update the data from this old post. Here's what I found: if you measure inequality using the Gini index, you'd conclude that after increasing during the 1980's, inequality levels had stabilised since 1995.
(The break in the black line is due to a data redefinition in Sweden.)
These sets of numbers are all generated by the various countries' statistical agencies, so I really shouldn't be plotting them together like this - cross-country differences in methodology likely make direct comparisons a somewhat dodgy exercise. But even if you don't think that the Gini levels have converged to the same level in all three countries, you would still have profiles that are relatively flat since 1995. Current Gini indices are what they were 15 years ago. (You see the same pattern in the US as well.)
If there are countries that have succeeded in addessing inequality, it is certainly not by means of arranging more equal market incomes. (See also my series of posts that note that initiatives to use minimum wages to reduce inequality are at best pointless: , , .)
Of course, what really matters isn't inequality in market incomes; we're mainly concerned with inequality in disposable incomes after transfers and taxes. If increasing inequality in market incomes is offset by increased redistribution, then the effect on disposable incomes can be cancelled out.
Here are the Gini coefficients for disposable incomes:
- These lines are all below those in the first graph: disposable income is more equally distributed than is market income.
- The 0.08-point increase in Canadian market income Ginis shows up as a 0.04 increase in disposable income Ginis. In other words, half of the increase in inequality in market incomes was offset by the tax and transfer system.
- In the UK, only about one-quarter of the increase was offset by government policy.
- The increase in the Gini coefficient in Swedish disposable incomes was greater than the increase in that for market incomes. Swedish policy had the effect of amplifying the increase in inequality.
- Notwithstanding, Swedish redistribution policy remains the strongest of the three.
Here is a graph of the difference between Gini coefficients for market and disposable incomes:
Although Sweden's system is still more progressive, it has become less so.
Marc Frenette, David Green and Kevin Milligan have an article in Canadian Public Policy on the evolution of Canada's tax-and transfer system:
In this paper, we investigate the relationship between the substantial changes in tax and transfer programs and the movements in after-tax income inequality over the 1980s and 1990s. We show that in the 1980s, tax and transfer programs became more redistributive, offsetting substantial increases in market income inequality. In the 1990s, the tax and transfer system stopped undoing the increases in market income inequality, leading after-tax income inequality to rise. Even so, tax and transfer programs were more redistributive in 2000 than in the 1980s. Much of the changes occurred at the provincial level, with social assistance payments first increasing (in the late 1980s) then decreasing (in the late 1990s) and with surtaxes on high-income earners being first imposed and subsequently removed.
The graph is consistent with this story. They also note that much of the movement in the redistributive nature of the tax and transfer system comes from transfers, particularly at the provinicial level. The Swedish data I have don't break out the roles of taxes and transfers, so here are their respective contributions to the reduction in Gini coefficients in Canada and the UK:
Here is a point that cannot be repeated enough: most of the reduction in inequality in Canada and elsewhere is due to the system of transfers. This is a very general result; here is another graph from that Lane Kenworthy article I mentioned:
The countries that have had most success in reducing income inequality have done so with their system of transfers, not with the tax system.
A final technical note: regular readers may be wondering about posts like this, which document the increasing concentration of income in an increasingly smaller number of high earners. Why aren't we seeing this trend in the Gini coefficients? The answer is that Gini coefficients don't do a very good job of capturing this trend - which is why there's such an active research agenda on the question of how to measure inequality.