EU Policy Making and Growing Inequalities

Summary:

The paper takes stock of important new developments in data sources on income inequality and wealth inequality and sketches long run changes for various inequality measures. It critically discusses limitations and gaps and extends for income inequality in two directions – by considering the distribution of income for the EU as a whole and comparing this to the USA on the one hand, and by scrutinising the effects of income redistribution as well as of equivalisation of incomes for the nature of the receiving household on the other hand. As a result of the former very high poverty rates are found in some countries, which demand a much stronger policy focus than general anti-poverty measures can offer. Increased redistribution and particularly the introduction of a European child basic income is proposed, which also can offer children protection against undue effects of policy making. The latter shows an important role for equivalisation and a potential overestimation of the effects of redistributive policies.

In addition, the paper considers the important contribution made to income inequality by households depending on labour earnings. In the light of these findings the paper discusses future trends in income inequality and evaluates the role of EU policies. These are found wanting because of their narrow focus on risk of poverty and the absence of a role for considering poverty and inequality in policy made at the European level. Instead it advocates mainstreaming inequality concerns in broad areas of policy making and suggests starting an annual Inequality Assessment of the Union. It concludes by stressing the need for improving the data situation, in particular regarding the distribution of wealth, by introducing a Billionaires Directive for obligatory reporting on top wealth and incomes.

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