In one part of a rather ambitious article in the Journal of Economic Literature’s September issue, Norwegian economists Magne Mogstad, Kjell Salvanes, and Gaute Torsvik attempt to identify the causes of the relative income equality enjoyed by Nordic countries compared to other developed economies. Sadly, over the couple of months since the article was published, this bit of their research has been taken up by advocates of predistribution over redistribution as proof welfare programs are less effective weapons in the fight against income inequality.
The authors aren’t totally blameless of course. One of their paper’s key findings, they wrote, is “that a more equal predistribution of earnings, rather than income redistribution, is the main reason for the lower income inequality in the Nordic countries compared to the United States and the United Kingdom.” This is wrong.
Without getting too into the weeds, Mogstad, Salvanes, and Torsvik tried to draw out the effects of redistribution by looking at OECD data on countries’ Gini coefficients — a common measure of income inequality — before and after accounting for taxes and transfers.
A Gini coefficient of 1 reflects perfect inequality and a Gini coefficient of 0 reflects perfect equality. If the Gini of disposable income (after taxes and transfers) is less than the Gini of market income (before taxes and transfers), then government “redistribution” so defined reduces inequality by that difference.
This is more or less fine: the primary issue with the approach taken by Mogstad, Salvanes, and Torsvik isn’t methodological, it’s the specific data they chose to use. They only look at the Gini coefficients for working-age individuals (eighteen to sixty-five years old). As Matt Bruenig noted, this essentially “prove[s] that the welfare state does not drive the low-inequality outcomes by defining the welfare state out of existence.”
After all, the primary purpose of the welfare state is…
Auteur: Chance Phillips
