Apples, Oranges, Facts

Analyses of income distribution are currently high on the agenda. Quite often the results of different studies are named in the same breath or mixed in media reports. Though it is rather difficult to reconcile the different findings without considerable explanation. Sometimes the results are even contradictory.

According to the World Economic Forum’s first Inclusive Growth and Development Report the Scandinavian countries Denmark, Norway and Finland perform particularly well in balancing economic performance with a fair distribution of income. In this context the report and its media coverage also cite another study of the OECD – which, however, implies fairly different conclusions: Finland and Norway suffered a loss of more than eight percentage points of their GDP growth over the period 1990-2010 due to increasing income inequality.

The German media coverage on the World Economic Forum’s report highlights the comparatively high wealth inequality in Germany. This is surprising since the key indicators of the report rather concentrate on measures of income distribution. And, with regard to the distribution of income Germany robustly ranks within the upper mid-range of the 30 observed Advanced Economies (rank 11 with its poverty rate, rank 13 according to Gini of net income inequality).

In any case, it is a misconception that wealth inequality and income differences go necessarily hand in hand: The countries that score well with respect to the level of income inequality are in no way only countries with a notably low level of wealth inequality: According to the Credit Suisse Global Wealth Databook wealth inequality in Norway and particularly Denmark is higher than in Germany.

Likewise the postulation of some journalists to increase the value-added tax, to simultaneously enhance the fairness of the tax system and to foster economic growth, confuses. Since the value-added tax symbolically stands for the trade-off between efficiency and equality: The value-added tax implies less distortion than direct taxes, but it disproportionally burdens those with lower incomes.