Inequality in Europe
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Gini index is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation’s residents and is the most commonly used measure of inequality.
A Gini index of 100% expresses maximal inequality among values (e.g., for a large number of people, where only one person has all the income or consumption, and all others have none, the Gini coefficient will be very nearly one)
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Related posts:
– Mean and median wealth per adult in
– Wealth estimates in Europe
– Household wealth levels in Europe (2000 – 2016)
– Debt per adult in Europe by country (2000 – 2016)
Wait, Denmark is more like Russia than it is like Spain?
I believe the answer to the different ratings is to be found within the debt system utilized in Denmark.
Danes have easy access to mortgage loans (or at least had, prior to the financial crisis), and as such a very large % of the population are actually in debt and paying off on substantial loans.
So 2 families of equal income would have very large differences in immediate wealth, due to the fact that 1 family is deeply in debt, but owns a house, and another family would be considered wealthy simply because they have large amounts of saving and no debt.
I believe this explanation more properly illustrates how equal income can cover large wealth-spread, since a reduced incentive to save due to healthcare and education, is equal to the entire population (whereas the eagerness to loan differentiates a lot with geographical locations within the country).
Denmark has the highest level of taxation of any place in the world.
However, the taxes are on personal income and consumption and much lower on capital gains.
Personal income is marginally taxed at 60%. VAT is 25%. Cars are marginally taxed at 180% making a ford focus or a VW golf cost 40.000 euros.
On the other side capital gains on real estate are not taxed at all. And capital gains on financial assets inside a pension fund (401k) are taxed only 15%.
The last 30 years have seen huge capital gains in real estate and real estate is by far the largest asset market in Denmark.
I think this is the primary explanation of the two wildly different Gini coefficients.
I was fascinated by this too. Debt is part of the answer, but not because of mortgages (as they are offset by the value of the house). The inclusion of business debt in household wealth accounting means that there can be important differences in how the data is calculated for each country.
The other key issue is the rate of home-ownership. Houses are usually the main store of wealth in developed countries. Denmark has a rate of home-ownership close to 50% – meaning close to a maximum disparity in this department. A large number of households that are rented, means there are also a good number of “wealthy” landlords. Most developed countries have considerably higher rates of home-ownership and so less inequality.