Why Is Europe More Equal Than the United States?

Abstract

We combine all available household surveys, income tax and national accounts data in a systematic manner to produce comparable pretax and posttax income inequality series in 38 European countries between 1980 and 2017. Our estimates are consistent with macroeconomic growth rates and comparable with US Distributional National Accounts. We find that inequalities rose in most European countries since 1980 both before and after taxes, but much less than in the US. Between 1980 and 2017, the European top 1% pretax income share rose from 8% to 11% while it rose from 11% to 21% in the US. Europe's lower inequality levels are mainly explained by a more equal distribution ofpretax incomes rather than by more equalizing taxes and transfers systems. "Predistribution" is found to play a much larger role in explaining Europe's relative resistance to inequality than "redistribution": it accounts for between two-thirds and