One of the most disconcerting experiences, even uncomfortable, is to come across a result that contradicts our worldview. But it is one of the richest experiences we can have. Teach us tolerance and always doubt our certainties.
It is known that the American economy is much more unequal than the European one. The result occurs whether we compare the US with each country in Europe or when we consider Europe as a single country.
My world view has always been that America’s greatest inequality is due to the smallest welfare state there. Well according to a social democratic view, in the United States taxation is lower, as is the supply of public insurance.
Europe, in turn, chose higher tax burdens so that the State has more resources to offer public insurance. As a result, some of the greater American inequality follows from less redistribution by the state. This is also the view accepted by the literature.
The article “Why is Europe more egalitarian than the United States?” will be published in the next issue of the journal of applied economics of the American Economic Association.
The authors, Thomas Blanchet, Lucas Chancel and Amory Gethin, are from the Laboratory of World Inequality at the Paris School of Economics, an institution led by the popular and respected French researcher Thomas Piketty.
From a careful conciliation of several researches for several countries, the work inverted the established vision. The inequality gap between the US and Europe is greater when one considers people’s incomes before the state — that is, before paying taxes and receiving public services and transfers — than after the state. The American State redistributes more than the European State!
In some way, which the work does not elaborate —the objective of the work is only to establish a stylized fact (it is already an enormous contribution)—, Europe pre-distributes income. How? I do not know. It will take a lot of work to find out. There are at least two possibilities.
The first, more orthodox, suggests that the European education system is more efficient at equaling opportunities. The European State would prioritize equality of opportunity, and the American State, equality of results.
The second, more heterodox and complementary to the previous one, suggests that the regulation of the labor market and the intervention of the State in the productive process in Europe guarantee good jobs for all (or almost all). We wait for the next chapters.
The difference in the result was due to the use of several surveys. Traditionally, the inequality literature works with household surveys, such as our Pnad (National Household Sample Survey), conducted monthly by the IBGE. These surveys generated the traditional view that the European state redistributes more than the American state.
The recent work added federal revenue agency data, which can better see the rich, and national accounts data, which allow for indirect taxes and after-tax business profit.
Before state intervention, the richest 10% in the US receive 45.7% of the income and 34.3% in Europe, a difference of 11.4 percentage points. After paying taxes and transfers, the figures are, respectively, 37.1% and 30.4%, a difference of 6.7 percentage points (down 41% from the difference between regions).
The American state redistributes more than the European state at both ends: taxation is more progressive, as it is less dependent on indirect taxes; and public spending is more focused on the poor.
Living and learning.
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
