Why Is Europe More Equal than the United States?
- American Economic Journal: Applied Economics (Forthcoming)
This article combines all available survey, income tax, and national accounts
data to produce pretax and posttax income inequality series in twenty-six
European countries from 1980 to 2017. Our estimates are consistent with
macroeconomic growth rates and comparable with U.S. distributional national
accounts. Inequality grew in nearly all European countries, but much less than
in the U.S. This rise was concentrated at the top end of the income distribution
and was most pronounced in Eastern Europe. Contrary to a widespread view, we demonstrate that Europe’s lower inequality levels cannot be explained
by more equalizing tax-and-transfer systems. After accounting for indirect
taxes and in-kind transfers, the U.S. redistributes a greater share of national income
to low-income groups than any European country. “Predistribution”, not
“redistribution”, explains why Europe is less unequal than the United States.
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