Skip to main content

Can we reduce income inequality in OECD countries?

Abstract

The public debate about inequality has generated a sense of gloom and doom—that high levels of inequality are inevitable and that little can be done. The aim of this paper is to inject a more optimistic note. I argue that there have been periods in the past when income inequality was reduced and we can learn from these, that the textbook story of the causes of rising wage inequality—globalisation and technological change—has a more optimistic interpretation; and that, whereas wages are a major part of household incomes, but there are other important determinants where it is possible to take action to reduce inequality. The paper ends by outlining four “old” measures to reduce inequality, based on the lessons from the post-war decades in Europe, and four “new” measures suggested by the analysis of today’s economics of inequality.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2
Fig. 3

Notes

  1. 1.

    A gross income of Y becomes a net income of (1 − t)Y + A, where t is the tax rate and A is the benefit paid to everyone (this can be thought of as the value of the personal tax allowance). Since A is the same for all, the Gini for disposable income is (1 − t) times the Gini for market income (Y) divided by the ratio of average disposable income to average market income. Then, if government spending on goods and services (health, education, defence, etc.) absorbs 20 % of tax revenue, the latter ratio is equal to 80 %. Suppose further that the Gini coefficient of market incomes is 50 %. The reduction in the Gini for disposable income from an increase ∆t in the tax rate is then 0.5 times ∆t divided by 0.8.

References

  1. Atkinson AB (1997) Bringing income distribution in from the cold. Econ J 107:297–321

    Article  Google Scholar 

  2. Atkinson AB (2008) The changing distribution of earnings in OECD countries. Oxford University Press, Oxford

    Book  Google Scholar 

  3. Atkinson AB (2015) Inequality: What can be done? Harvard University Press, Cambridge

    Google Scholar 

  4. Atkinson AB, Harrison AJ (1978) Distribution of personal wealth in Britain. Cambridge University Press, Cambridge

    Google Scholar 

  5. Atkinson AB, Morelli S (2014) Chartbook of economic inequality. http://www.chartbookofeconomicinequality.com/

  6. Atkinson AB, Søgaard J (forthcoming) The long run history of income inequality in Denmark. Scand J Econ

  7. Grabka MM, Goebel J, Schupp J (2013) Has income inequality spiked in Germany? In: Rahmann U, Schupp J (eds) SOEP wave report 2012. DIW, Berlin, pp 57–68

    Google Scholar 

  8. Hartog J, Vriend N (1989) Post-war international labour mobility: The Netherlands. In: Gordon I, Thirlwall AP (eds) European factor mobility. Macmillan, London

    Google Scholar 

  9. Hauser R (1999) Personelle Primär- und Sekundärverteilung der Einkommen unter dem Einfluss sich ändernder wirtschaftlicher und sozialpolitischer Rahmenbedingungen. Allg Stat Achiv 83:88–110

    Google Scholar 

  10. Heidensohn K (1969) Labour’s share in national income. A constant? Manch School 37:295–321

    Article  Google Scholar 

  11. IMF (2007) Spillovers and cycles in the global Economy. In: World economic outlook, April, IMF, Washington, DC

  12. IMF (2014) Recovery strengthens, remains uneven. In: World Economic Outlook, April, IMF, Washington, DC

  13. Meade JE (1964) Efficiency, equality and the ownership of property. Allen and Unwin, London

    Google Scholar 

  14. OECD (2011) Divided we stand: why inequality keeps rising. OECD, Paris

    Google Scholar 

  15. OECD (2012) Employment outlook 2012. OECD, Paris

    Book  Google Scholar 

  16. ONS (2011) The effect of taxes and benefits on income inequality, 1980–2009/10. ONS, London

    Google Scholar 

  17. Paine T (1797) Agrarian justice. U.S. Social Security Administration under the heading of “Social Insurance History”. http://www.socialsecurity.gov/history/paine4.html

  18. Piketty T (2011) On the long-run evolution of inheritance: France 1800–2050. Quart J Econ 126:1071–1131

    Article  Google Scholar 

  19. Piketty T (2014) Capital in the twenty-first century. Harvard University Press, Cambridge

    Google Scholar 

  20. Roine J, Waldenström D (2015) Long run trends in the distribution of income and wealth. In: Atkinson AB, Bourguignon F (eds) Handbook of income distribution, vol 2. Elsevier, Amsterdam, pp 469–592

    Google Scholar 

  21. Schumpeter JA (1991) The economics and sociology of capitalism. In: Swedberg R (ed) The economics and sociology of capitalism. Princeton University Press, Princeton

  22. Sen A (2009) The idea of justice. Allen Lane, London

    Google Scholar 

  23. Stiglitz JE (1969) Distribution of income and wealth among individuals. Econometrica 37:382–397

    Article  Google Scholar 

  24. Summers L (2013) Economic possibilities for our children. NBER reporter, no. 4

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Anthony B. Atkinson.

Additional information

A (considerably) revised version of a plenary lecture given at the Nationalökonomische Gesellschaft/Austrian Economic Association Annual Meeting in Vienna, May 2014. I am most grateful to Wilfried Altzinger and his colleagues for the invitation and for their warm hospitality. The paper is based on research carried out in the Inequality Group that forms part of the EMoD programme supported by INET at the Oxford Martin School. It draws on joint recent work with Salvatore Morelli on the Chartbook of Economic Inequality and with Facundo Alvaredo on the World Top Incomes Database.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Atkinson, A.B. Can we reduce income inequality in OECD countries?. Empirica 42, 211–223 (2015). https://doi.org/10.1007/s10663-015-9288-0

Download citation

Keywords

  • Inequality
  • Wages
  • Redistribution