So far, we’ve mostly been writing about wealth inequality in the United States. Makes sense, as most of us live and grew up here, but it’s easy to get wrapped up in your own country’s issues and forget about the rest of the world. Perspective can be a useful thing, so how about we take a look at how we measure up to other countries?
According to the Organization for Economic Cooperation and Development (OECD), the United States has “one of the most unequal income distributions in the developed world.” The article says that income is not necessarily an absolute measure of wealth inequality, but it remains a useful one, particularly when comparing different countries.
You may be wondering by this point: how exactly do you compare income inequality between countries? Surely there isn’t a single number that sums everything up… As it turns out, there is! The Gini Index is a number between 0 and 1 that represents a country’s income inequality. 0 means everyone has exactly the same income (minimum income inequality), and 1 would mean one person has all the income (maximum income inequality).
The OECD keeps track of 34 mostly developed countries, which includes the US. In 2010, after taxes and transfers, the United States had a Gini Index of .38, second only to Chile with .5. The countries with the lowest Gini Index are Iceland (.24), Norway (.25), and Slovenia (.26). Outside the OECD, South Africa has the highest Gini Index: .62.
The OECD also points out an interesting fact: taxes and transfers are a way for governments to redistribute wealth and reduce income inequality. The statistics are taken after taxes and transfers; but an important metric is how much of a difference a country’s taxes and transfer programs actually made. Strikingly, the average difference between pre- and post- redistribution is .163. The United States’ is only .119. Simply put: our wealth redistribution programs (taxes, unemployment benefits, etc.) don’t make nearly as much of a difference as other countries do.
So, next time you get into a heated debate with your aunt on Facebook about tax policy, point her to this article. Numbers are hard to argue with… although that won’t stop some people from trying.
By Daniil Chupalov