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May 13, 2019

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Rich-poor divide in EU widens but still tops for equality

Although the gap between rich and poor has widened in the European Union over the past decades, the bloc is a world leader in fighting inequality, experts say.

The internationally accepted Gini coefficient formula that measures income disparities gives the 28-nation EU, as a whole, one of the best rankings in the world for equality, alongside that of Canada.

Both are rated at a rounded-off 31 out of 100 in the ranking (2017), in which higher indexes indicate greater levels of inequality. But the scores of various countries within the European Union differ markedly, with some of those of the former communist states in Eastern Europe bringing down the average.

Bulgaria has the highest level of inequality with a Gini index of 40, according to EU’s statistics office Eurostat.

It is followed by the former Soviet states of Lithuania and Latvia, and then Spain, Portugal and Greece. Britain and Romania are next, both measuring 33. Germany, France and Poland do slightly better, averaging around 29.

Egalitarian states

Topping the list as the most egalitarian are the three former communist countries of Slovakia (23), Slovenia and the Czech Republic, both around 24. They are followed by Nordic countries Sweden, Denmark and Finland, along with Belgium, the Netherlands and Austria, all scoring between 26 and 28.

While Europe has been more successful than most regions in containing income inequality rises seen around the world, inequalities increased in most of its countries over 1980-2017, according to the World Inequality Lab (WIL).

“The European top one percent grew more than two times faster than the bottom 50 percent,” the Paris-based group of experts said in an report in April.

It pointed to a focus on reducing inequalities between EU member states rather than within the countries themselves.

The largest rise was in formerly communist Eastern European countries that were the most egalitarian during the 1980s and moved toward capitalism in the 1990s.

Here “privatizations associated with the transition from socialism to capitalism have benefited a small elite,” the report said.

In Western Europe, the richest 10 percent earn, on average, seven times more than the poorest 50 percent before taxes, WIL said.

However, after tax, this is only five times more — a drop of 29 percent.

The post-tax adjustment is 23 percent in Southern and Northern Europe and 15 percent in the east.

While Western European countries tend to impose higher taxes on higher incomes, many eastern countries such as the Baltic states Bulgaria and Romania have a flat tax rate, meaning poor and rich pay the same percentage.

The lack of progressive taxation in some countries, in a context of economic competition, contributes to inequalities, including by undermining financing for public services, WIL said.

Despite a rise in inequality, the EU fares better than the United States, it said. The bloc’s education and health systems are more egalitarian and social benefits play a major role.

Since 1980 the revenues of the poorest half of the European population increased by 37 percent while they stagnated in the United States.

Meanwhile, the income of 0.01 percent of the most well-off increased more than 300 percent in the United States, twice as much as Europe.

The Gini index put the United States at 39, eight points higher than the EU.


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