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Kickoff conference at LSE, 19-20 March 2010 István György Tóth (with contributions by Márton Medgyesi and Tamás Keller) Income inequality measured and perceived: European comparisons István György Tóth / [email protected] / http://www.tarki.hu Research question 1) Part I: describe and assess the level and background factors of inequality in European countries as measured by EUSILC 2) Part II: describe and assess the level of tolerance towards inequality in European countries as measured by EU-SILC 3) Part III. conclude István György Tóth / [email protected] / http://www.tarki.hu In Part I we … - examine the distribution of incomes in EU member states (new and old), with standard methods and assumptions - test if alternative measures and concepts affect the broad picture - analyse determining factors of income inequality Base: and SSO 2009 Annual Report István György Tóth / [email protected] / http://www.tarki.hu In Part II we … - examine the distribution of inequality perceptions in EU member states - try finding alternative measures for a better fit between measured and perceived (tolerated) inequality levels - analyse determining factors of inequality tolerance István György Tóth / [email protected] / http://www.tarki.hu Data and definitions • For measured income inequalities: – – – – – – Eurostat EU-SILC UDB 2007 released XXXXXXX reference year: 2006 income concept: yearly net household monetary income country coverage: EU27 – (RO, BG and MT) Bottom and top coding at 0.1 and at 99.95 percentiles Research background: SSO, OECD ineq paper, Tarki international comparisons • For inequality tolerance • • • • Special Eurobarometer 72xxxx ISSP ESS xxx István György Tóth / [email protected] / http://www.tarki.hu Measured Income Inequality István György Tóth / [email protected] / http://www.tarki.hu Gini indices of income inequality and 95% confidence intervals - Statistical margin of error: (overlapping) groups of countries can be identified - „Unequal”: PT, LV, GR, LT - „Equal”: SI, SE, DK - NMS: in the whole spectrum Source: Based on data from the Eurostat New Cronos database. http://epp.eurostat.ec.europa.eu/ Note: Bootstrap confi dence intervals were obtained by 1,000 replications. István György Tóth / [email protected] / http://www.tarki.hu INEQUALITY SENSITIVITY: ALTERNATIVE EQ SCALES Alternative Equivalence scales: •„”OECD II” (1st adult=1, other 14+ members=0.5, all members <14=0.3), which is the default in this paper (e=0.7, approx) •per capita adjustment (adjust for hh size, each member receives a weight of 1) Results: Gini (OECD2) < Gini (Per capita) - The effect of switching is large in countries where initial measured Gini (OECD2) is lower - Consequence: based on per capita incomes, country differences are larger - NMS in both groups more restrictive scales (e=sqr2) István Note: György Tóth / [email protected] / http://www.tarki.hu to be investigated Sensitivity of Gini estimates to the choice of equivalence scale (1.) 0,38 0,40 0,36 0,38 0,34 0,36 0,34 0,32 0,32 0,30 0,30 0,28 0,28 0,26 0,26 0,24 0,24 0,22 0,22 0,20 0,20 e=1 e=0.75 IE OECD II UK e=0.5 DK e=0.25 FI e=0 SE István György Tóth / [email protected] / http://www.tarki.hu e=1 e=0.75 OECD II EE e=0.5 LT e=0.25 LV e=0 Sensitivity of Gini estimates to the choice of equivalence scale (2.) 0,40 0,38 0,36 0,36 0,34 0,34 0,32 0,32 0,30 0,30 0,28 0,28 0,26 0,26 0,24 0,24 0,22 0,22 0,20 e=1 0,20 e=1 e=0.75 AT BE OECD II DE e=0.5 FR e=0.25 LU e=0 NL e=0.75 OECD II CY ES e=0.5 GR e=0.25 IT e=0 PT 0,36 0,34 0,32 0,30 0,28 0,26 0,24 0,22 0,20 e=1 István György Tóth / [email protected] / http://www.tarki.hu e=0.75 CZ OECD II HU e=0.5 PL e=0.25 SI e=0 SK The income distributions of the countries of the European Union (Euros, PPP) Conclusion: Ranked by country avg incomes, NMS-s cluster at the bottom (presumably, roughly corresponding to GDP ranking) - Care be taken with PPP (CY vs SE) - Methods: - Bars connect (Euro, PPP) avg incomes of deciles - Not shown: variance at ends of distributions!! Source: EU-SILC (2006) Note: The bottom of the data bars represents the first decile, the top represents the tenth decile and the marks in between show the average incomes of the individual deciles. István György Tóth / [email protected] / http://www.tarki.hu The distribution of the population among the different categories of the overall European income distribution, by country Findings: -The majority of the population in LT, LV, PL, EE SK, HU belong to the <50%med EU bracket -This ratio in CZ and SI is lower Source: Own calculations based on EU-SILC 2006 István György Tóth / [email protected] / http://www.tarki.hu Percentage of inequalities explained by different factors in the country groups, 2005 Note: Percentages are simple country averages. Age (>5%): North (and CY) Education (>15%): Mediterranean countries (PT, CY, GR), Former socialist countries (HU, LT, SI, PL), + LU, + IE Employment (>10%): Baltics and Anglo-Saxon countries plus FI, DK, BE, CZ István György Tóth / [email protected] / http://www.tarki.hu Perceptions and tolerance István György Tóth / [email protected] / http://www.tarki.hu Inequality tolerance: are income differences too large? 90% European societies differ very much in their general attitudes towards inequalities. The share of people most dissatisfied with the overall level of inequality is over 70% in LT, HU, SI, EE, BG GR and LV while it is below 40% in DK, NL, AT, IT and MT. 80% 70% 60% 50% 40% 30% 20% 10% 0% DK NL AT MT IT UK SE BE IE ES PT LU EU FI PL CZ FR SK DE RO CY LT GR BG EE SI HU LV The share of population who “totally agree” with the question: “Nowadays income differences between people are fir too large”. Source of date: Special EuroBarometer, 2009. István György Tóth / [email protected] / http://www.tarki.hu Preference for redistribution – Government should reduce income levels 90% 80% The “preference for (vertical) redistribution” 70% 60% is strongest in some 50% Eastern European 40% countries, including HU 30% and LV 20% 10% and Latvia, while in 0% some other former transition countries (CZ, of population who “totally agree” with the question: “Government should SK) this share shows The share ensure that the wealth of country is redistributed in a fair way”. Source of date: Special EuroBarometer, 2009. among the lowest in Europe CZ DK NL SK UK PL IT BE AT LU PT EU EE DE FR ES LT FI SE IE BG RO SI MT LV CY HU GR István György Tóth / [email protected] / http://www.tarki.hu The relationship between inequality tolerance and redistributive preference Inequality intolerance and redistributive preference correlates, with some exceptions. In GR, HU and CY, the frustration with inequality levels is coupled with a high strain on government, while in PL, SK and CZ the relatively lower level of inequality intolerance is coupled with some of the lowest level of popular redistributive preferences. Y axis: The share of population who “totally agree” with the question: “Government should ensure that the wealth of country is redistributed in a fair way”. Source of date: Special EuroBarometer, 2009. X axis: The share of population who “totally agree” with the question: “Nowadays income differences between people are fir too large”. Source of date: Special EuroBarometer, 2009. István György Tóth / [email protected] / http://www.tarki.hu Inequality tolerance (2009) and Gini coefficient (2008) Inequality attitudes correspond only loosely to actual inequality levels. The level (and severity) of poverty seems to be a closer proxy to what people associate with “inequality” as the correlation for poverty rate and poverty gap is higher with inequality (in)tolerance. Y axis: The share of population who “totally agree” with the question: “Nowadays income differences between people are fir too large”. Source of date: Special EuroBarometer, 2009. X axis Gini coefficient 2008. Source of data: Eurostat New Cronos Database. István György Tóth / [email protected] / http://www.tarki.hu Tests for … Alternative measures S80/S20 relative poverty rate and gap employment and wage differentials by education Averageing over years Spell (quasi panel) analysis István György Tóth / [email protected] / http://www.tarki.hu Results inequality attitudes correspond only loosely to actual inequality levels the level (and severity) of poverty seems to be a closer proxy to what people associate with “inequality” (the correlation for poverty rate and poverty gap is higher with inequality (in)tolerance people make their judgements about levels of inequalities based on perceived poverty levels, rather than on the basis of some abstract inequality concepts using period averages may help sorting out distortions caused by measurement error a change in poverty levels may provoke higher redistributive preferences but much depends on national contexts István György Tóth / [email protected] / http://www.tarki.hu Poverty rate and redistributive preference Y axis: Redistributive preference is the share of population who “agree strongly” or “agree” to the question whether “Government should reduce differences in income levels”. Source of data: ESS 1st wave, ESS 2nd wave, ESS 3rd wave(20022006). X axis: At risk of poverty rate (cut-off point: 60% of median equivalised income after social transfers) between 2002 and 2006. Source of data: Eurostat New Cronos Database. István György Tóth / [email protected] / http://www.tarki.hu Poverty gap and redistributive preference Y axis: Redistributive preference is the share of population who “agree strongly” or “agree” to the question whether “Government should reduce differences in income levels”. Source of data: ESS 1st wave, ESS 2nd wave, ESS 3rd wave(20022006). X axis: Relative median at-risk-of-poverty gap. The difference (in %) between the income of persons below the at-risk-of-poverty line and the at-risk-ofpoverty line (cut-off point: 60% of median equivalised income after social transfers) between 2002 and 2006. Source of data: Eurostat New Cronos Database. István György Tóth / [email protected] / http://www.tarki.hu Conclusion •There are significant cross country differences tolerance for inequalities •It is not only country averages but also the internal distribution of preferences vary across countries •In addition to objective income position, subjective mobility experiences and prospects, reference roups (comparison incomes) all matter •Tolerance for inequality also contributes to demand for redistribution: in addition to self interest motives (income position, POUM, risk aversion) and to exogenous values (over individualism in society and over altruistic and reciprocity motives) •This is a growing and interesting area research area. István György Tóth / [email protected] / http://www.tarki.hu Table 1.1 Trends in poverty in countries with low, medium and high levels of poverty Period: 1995–2001 Poverty trend Decline Low Level of poverty No significant change or unclear trend Increase Denmark, Luxembourg, Netherlands, Sweden Finland Medium Austria, Belgium, Germany France High Italy, Greece, Portugal Spain, UK Ireland Notes: (1) Low poverty level: poverty rate<12; medium poverty level: 12<poverty rate<18; and high poverty level: poverty rate>18. (2) Increasing/declining trend: poverty rates increased (declined) in minimum two consecutive years or by minimum 2%. István György Tóth / [email protected] / http://www.tarki.hu Table 6.1 Magnitude and direction of change in the variables examined between 2000 and 2005 Country Gini coefficient 00/05 Poverty rate 00/05 GDP PPS 00/05 AT 0 + 0 BE 0 ++ 0 BG - -- +++ CY .. .. 0 CZ 0 +++ ++ DE + ++ 0 DK + ++ 0 EE - 0 +++ ES - + + FI 0 ++ 0 FR 0 0 0 GR 0 0 ++ HU ++ ++ ++ IE ++ -- + István György Tóth / [email protected] / http://www.tarki.hu Table 6.1 Magnitude and direction of change in the variables examined between 2000 and 2005 Country Gini coefficient 00/05 Poverty rate 00/05 GDP PPS 00/05 IT ++ + -- LT ++ ++ +++ LU 0 ++ + LV ++ +++ +++ MT .. .. - NL 0 - 0 PL + ++ + PT 0 - 0 RO + ++ +++ SE + + ++ SI + + ++ SK .. .. +++ UK - + 0 István György Tóth / [email protected] / http://www.tarki.hu Figure 6.6 The change in the Gini coefficient and the change in GDP PPS per capita, 2000-05 Gini coeffic ient . 40 LV05 ? Data 2000 PT05 PT00 EE00 35 LV99 GR 05 EE05 RO05 PL05 LT00 30 LT 05 RO00 ES00 IT05 UK05 IE05 PL00 HU00 BG05 GR 00 U K00 ES05 BG00 25 ? Data 2005 IT 00 IE00 BE05 HU04 BE00 DE05 F I00 F R05 NL00 FR 00 NL05 FI05 CZ00 CZ 05 DE00DK05 AT05 AT 00 SI05 SE05 SE00 DK00 SI00 20 20 40 60 80 100 120 140 160 GDP per capita in Purchasing Pow er Standards István György Tóth / [email protected] / http://www.tarki.hu Figure 6.7 The change in the poverty rate and the change in GDP PPS per capita, 2000-05 Pov erty rate 25 ? Data 2000 LV05 20 RO05 RO00 15 BG00 ? Data 2005 GR 05 IE00 PT 00 LT 05 ES05IT05 GR00 IT 00 UK05 PL05 EE05 PT05 ES00 UK00 EE00 LT00 LV99 PL00 BG05 IE05 BE05 F R00/DE05/FI05BE00 AT05 FR05 SE05 AT00 SI05 DK05 SI00 N L00 HU00 FI00DE00 DK00 C Z05 NL05 SE00 CZ00 HU04 10 5 20 40 60 80 100 120 140 160 GDP per capita in Purchas ing Pow er Standards István György Tóth / [email protected] / http://www.tarki.hu Thank you! www.tarki.hu István György Tóth / [email protected] / http://www.tarki.hu