Income inequality

Interesting paper on income inequality out this week from the boffins at OECD. Particularly worth playing with the data in the graphical package Gapminder.

The main findings include:

• Income inequality rising since the 1980s in all countries along with increased social spending to offset it. This suggests if governments start to ‘let loose’, or fail to target poverty-reducing spending, income inequality will accelerate further.
  
  
• Income inequality rising since 2000 in countries like the US and Germany but falling in the UK and Australia. I tested this out on the historical data plotting poverty against social spending since the 1980s. Each bubble represents a year; I’ve added the green lines to highlight the change in most recent years. Of the four, the US has the highest rates of poverty, then Australia, Germany and the UK. Germany and the UK have traded places with a radical drop in poverty in the UK in recent years and coinciding rise in Germany. The UK’s cut appears to have cost an additional 3 percentage points of GDP on social spending; Germany’s rise has been while social spending has been pretty constant (presumably feedback from the structural and higher unemployment they’ve suffered in recent years).
  
  


• Getting more people in work is – unsurprisingly – found to be one of the major ways to reduce poverty, although capital inequality is now more significant in the past. This must be particularly so for those house buying, share-owning Anglo-Saxon economies.
  
  
• Growth and poverty is a more mixed story. The US and Australia have been growing but with rising inequality in recent years (albeit Australia from a much lower base). The UK has been growing but with sharply falling rates of inequality (albeit still higher than Australia).

Focusing solely on the Australian and UK trends for a second this does go some way to explaining in general terms where the two currently differ in political trends. The UK has cut poverty and inequality but the rising social spending this has cost is probably coming to an end and seems to have - for the present at least - maxed out taxpayers' willingness to spend. Meanwhile, Australia has had a long period of rapid growth, though the public now appear more willing to countenance higher spending on social security and public services to improve equity and fairness. I guess we'll find out what the US electorate think very soon...