Accounting for inequality in the EU: Income disparities between and within member states and overall income inequality

In fighting inequality and poverty in the EU emphasis has been placed in reducing differences between countries and/or regions regarding certain macroeconomic indicators, such as the GDP per capita. However, from a policy perspective it is important to know the extent to which overall inequality in the EU is attributed to inequality between the individual countries and the extent to which it is attributed to inequality within them. In addition, it is important to know the extent to which income disparities in each individual member state contribute to overall EU inequality. Following certain assumptions, hypotheses and alternative scenarios, this paper investigates the above questions, employing a decomposition analysis of inequality by population subgroup and utilizing data and information provided by the CHER programme. A number of alternative inequality indices were used to capture the different aspects of inequality and test the robustness of the estimates. The suggested typologies of welfare state regimes were also examined to explain the differences in income inequality between countries and their contribution to overall EU inequality. Policy analysts and policy makers could benefit greatly from such information in evaluating, designing and implementing interventions to deal with inequality and poverty in the EU.