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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