Income Inequality Trends in Turkey

Turkey’s income inequality is one of the highest within the OECD countries. Despite a decline in Gini coefficient from 0.48 in 1994 to 0.41 in 2007, there is an upward trend in the recent years. This paper presents a preliminary investigation of income distribution in Turkey in the last 17 years using evidence from inequality index decompositions by sub-group and by income source. The improvement in income distribution between 1994 and 2003, a time period with high macroeconomic and political instability, can be attributed mostly to decline in within group inequality, whereas convergence between groups contributed to the decline in the first half of the 2000s. The data, however, reveals that the trends both in within and between inequality is reversed in the last four years. The main causes of the aggregate trends were educational attainment and occupational choice, that is, a shift from self-employment to paid employment. Consequently, changing wage inequality and thus changing labor market conditions became an important factor to determine aggregate inequality. There is also evidence that household formations, as a reflection of social and economic developments, are becoming an important source of inequality. The convergence of incomes between regions is possibly a consequence of regional policies of recent years, yet increases in within-region inequalities show that the policies have some deficiencies.