This document discusses inequality in the European Union. It defines inequality as the ratio of income received by the top 20% compared to the bottom 20%. It shows data on social protection expenditure per capita across EU countries in 2001. Generally, countries with lower GDP per capita had lower social protection spending relative to GDP, while countries with above average GDP had above average social protection spending. The document discusses how tax payments and tax expenditures affect gross public social spending in selected EU countries in 2001. It concludes that most EU member states are committed to reducing the tax burden on labor to make social protection more employment-friendly.

1. Lecture 9
Inequality in
the EU

2. Define Inequality
Who Experiences it?
Who Deals with it?
Who ends up paying for it?

3. Define “Inequality”
“The ratio of total income received by
the 20% of the population with the
highest income (top quintile) to that
received by the 20% of the population
with the lowest income (lowest
quintile). “

4. Handout

5. Functions of Social
Protection

6. Handout

7. EE LV LT IE MT SK CZ HU ES LU PL PT SI IT FI EL EU BE NL UK AT DK DE FR SE
Data for Cyprus are not available.
Source: Eurostat - ESSPROS database
Figure 2. Social protection expenditure per capita in PPS, 2001
10000
8000
6000
4000
2000
0
LV EE LT SK PL HU CZ MT PT ES SI IE EL EU IT FI UK BE DE NL FR AT SE DK LU
Luxembourg has to be considered as an outlier given that cross-border workers constitute a large share
of its labour force.
Data for Cyprus are not available.
Source: Eurostat - ESSPROS database

8. seems to hold. The countries with the lowest GDP per head also had low levels of
expenditure on social protection relative to GDP; those with above average
expenditure had above average levels of GDP per head.
Figure 3a. Social protection expenditure and GDP per capita in the Member
States, 2001
30
IE
DK
NL
AT
25 BE SE
UK FR
FI
GDP per capita, PPS (1000) - 2001
DE*
IT
20
ES
PT
MT SI EL
15
CZ
HU
SK
10 EE PL
LT
LV
5
10 15 20 25 30 35
Social protection expediture as a % of GDP - 2001
* Luxembourg is not shown in the Chart given its status as an outlier.
Data for Cyprus are not available.
Source: Eurostat - New Cronos databank and ESSPROS.
3

9. discourage employment creation in the formal labour market and the commitment of
most Member States to the objective of reducing the tax burden on labour and making
social protection more quot;employment-friendlyquot; remains important.
Figure 3b. Social protection expenditure and the employment rate in the
Member States, 2001
80
DK
75
NL SE
UK
Employment rates % - 2001
70
PT AT
FI
IE DE*
65 CZ
SI
LU FR
EE
60 BE
LV
SK ES
LT
HU
EL
55 IT
MT
PL
50
10 15 20 25 30 35
Social protection expediture as a % of GDP - 2001
Data for Cyprus are not available.
Source: Eurostat - New Cronos databank and ESSPROS.

10. Income Distribution

11. Cumulative Income
Distributions

12. The Structure
of Social
Financing: Who
Pays?

13. Figure 4. The effect of tax payments and tax expenditures on gross public social
spending in selected EU Member States*, 2001
Percentage change in public social spending allowed by the tax system
10
5
0
-5
-10
-15
-20
-25
DK SE AT NL BE ES IE CZ DE SK UK
* Account is taken of, on the one hand, the government quot;claw-backquot; on social spending through the direct
taxation of benefit income and the indirect taxation of the goods and services consumed by benefit recipients;
and, on the other hand, of the tax advantages for social purposes (i.e., tax breaks towards non-pension social
policy spending).
Only public social spending is taken into account; furthermore, the definition of social spending in the
calculations differs from the ESSPROS definition in some other respects.

14. Next Week
Political Economy of
accession to the EU
READ: Estrin, S. and Holmes, P.
Competition and Economic Integration in
Europe, pp. 1--22. 337.142 EST