# **3. THE EU8 AND EU15 COUNTRIES HAVE SIMILAR LEVELS OF INCOME INEQUALITY**

15. Using 2006 EU-SILC data, Table 2 presents average equivalized disposable incomes and four commonly-used summary inequality measures for the various countries. Several interesting points regarding the distribution of incomes in EU countries are evident from these summary statistics. First, country rankings based on prevailing level of income inequality within the broad set of countries surveyed are fairly robust to the choice of income inequality indicator—based on nearly all inequality measures presented in the above table, Slovenia, Sweden, and Denmark have the lowest income inequality among EU countries, while, conversely, Latvia, Portugal, and Lithuania have the highest level of income inequality.

**Table 2: Various Summary Measures of Income Inequality**

||**Mean**<br>||**Summary Inequ**|**ality Measures**||
|---|---|---|---|---|---|
||**Income**|**Gini**|**Coefficient of**|**Relative**||
|**Country**|<br>**(Euros)**|<br>**coefficient**|<br>**variation**|<br>**deviation**|**Theil index**|
|Slovenia<br>|10,176<br>|0.239<br>|0.466<br>|0.167<br>|0.097<br>|
|Sweden|19,088|0.240|0.519|0.166|0.109|
|Denmark|24,272|0.241|0.541|0.167|0.112|
|Czech Republic|5,497|0.249|0.595|0.175|0.119|
|Austria|20,163|0.254|0.513|0.177|0.113|
|Netherlands|19,943|0.258|0.613|0.180|0.128|
|Finland|20,370|0.264|0.741|0.183|0.143|
|France|18,609|0.275|0.625|0.192|0.140|
|Luxembourg|33,485|0.276|0.581|0.194|0.133|
|Belgium|19,159|0.279|1.518|0.194|0.187|
|Slovakia|3,859|0.279|1.189|0.191|0.202|
|Spain|13,010|0.310|0.633|0.219|0.166|
|Italy|16,949|0.319|0.694|0.223|0.182|
|Ireland|23,943|0.322|0.989|0.227|0.215|
|Hungary|4,700|0.324|0.887|0.223|0.223|
|United Kingdom|23,066|0.324|0.741|0.228|0.192|
|Estonia|4,359|0.329|0.685|0.234|0.187|
|Poland|3,768|0.329|0.690|0.232|0.188|
|Greece|11,634|0.336|0.720|0.237|0.199|
|Lithuania|3,049|0.349|0.717|0.249|0.210|
|Portugal|9,602|0.375|0.902|0.268|0.262|
|Latvia|3,234|0.387|0.920|0.276|0.277|
|**Ratio - min. to max:**<br>_Source:_World Bank staff cal|11.0<br>culations based o|1.62<br>n data from the 20|3.26<br>06 EU-SILC.Gini c|1.66<br>oefficientis a me|2.86<br>asure of statistical|

_Source:_ World Bank staff calculations based on data from the 2006 EU-SILC. <u>Gini coefficient is a measure of statistical</u> dispersion used as a measure of inequality of income distribution, with values between 0 and 1 (0 corresponds to perfect equality whereby everyone has exactly the same income, and 1 corresponds to perfect inequality where one person has all the income, while everyone else has zero income). Coefficient of variation is a measure of statistical dispersion obtained by dividing the standard deviation by the mean. Relative mean deviation is a measure of statistical dispersion defined such that IR = ∑ ׀ μ - xi / ׀ Nμ. Theil index is a measure of statistical dispersion defined such that IT = 1 / N ∑ xi / μ ln (xi / μ). IT lies between 0 (everyone’s incomes are equal) and ln N (one person has all the income).

16. Second, while most EU8 countries (except Slovenia) have average incomes considerably lower than those in EU15 countries, the extent of income inequality is in fact quite similar to that in EU15 countries (Chart 2). Finally, while we do observe some variation in the levels of inequality across countries (the Gini coefficient varies from a low of 0.24 in Slovenia to 0.39 in Latvia), most of the income inequality in the European Union is in fact between rather than within countries (average incomes vary by a factor of eleven across countries, from ~3,000 euros in Lithuania to 34,000 euros/equivalent adult/year in Luxembourg). Among EU8 countries, at the top end of the rankings are Slovenia and the Czech Republic (i.e. countries with greatest equality of incomes), which are quite similar to low-inequality Nordic countries like Sweden and Denmark (Gini coefficient ~ 0.24). Slovakia has slightly higher income inequality (Gini coefficient 0.28) similar in level to that in many 8