Inequality of Pre-fiscal and Post-fiscal Income Distribution in European Countries

The paper aims at assessing inequality of distribution of pre-fiscal income in European countries and capturing the statistical link between the pre-fiscal and post-fiscal income inequality, namely identifying redistributive effect of social transfers and income tax. All EU member states, along with Iceland, Norway and Switzerland in 2004-2014, are covered by the study. Unit data required to calculate the Gini coefficient were obtained from the EU-Survey on Income and Living Conditions (empirical sample ranged from 116 714 households in 2004 to 226 701 households in 2014). Fixed effect panel data model reveals that the original income Gini coefficient is not statistically significant predictor of the taxbenefit redistributive impact, which is expressed in relative terms (on average, countries with the most unequal original income distribution do not have more redistributive fiscal systems). Besides, the key variable of interest, as a comprehensive measure of income inequality, which is not able to discriminate between different aspects of inequality, has no explanatory power while explaining social expenditure-to-GDP ratio. But the original income Gini coefficient within the first quintile, the second quintile and between those two quintiles (within-group and between-group income inequality) turned out to cause social expenditure to grow.