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Income Inequality by Country

Is there a relationship between income inequality and quality of life in different countries?

Overview

Income “Inequality” is incessantly being used by Presidents, Popes, and high level political and financial leaders throughout the world, as a rallying cry equating “rising income inequality” with injustice, and calling for government intervention to stamp out this “greatest evil”.

But is the vision of the world upon which these conclusions is based accurate? Or is it based on a politically motivated, gross over simplification of a complex question by those seeking power over the lives of others?

This article analyzes the relationship between “income inequality” and multiple other measures of a country’s economic status to see what the relationship is, if any, between these various indicators of people’s quality of life.

The Data

Compared to other measures

The following Excel spreadsheet compares “income inequality”, as measured by the Gini Coefficient, to a variety of other measures of a country’s economic well-being, including: Economic Freedom, Corruption, Productivity (as reflected in per capita GDP), and Economic Prosperity for multiple countries with varying political and cultural systems. The countries were selected to try to show some of the extremes of inequality and its relationship to the other measures of well-being, including countries frequently used as good examples of government management.

Table: Inequality by Country

Country	Income Inequality	Economic Freedom	Government Corruption	Productivity	Economic Prosperity
	low numbers mean low inequality	high numbers mean high freedom	low numbers mean high corruption	average per person production thousands of dollars	country rank out of 142 countries
Sweden	23	73	9.2	41.2	6
Slovenia	24	63	6.4	27.9	53
Czech Republic	25	72	4.6	27.2	38
Denmark	25	76	9.3	37.9	23
Hungary	25	67	4.7	20.1	83
Norway	25	71	8.6	54.9	1
Slovakia	26	66	4.3	24.6	67
Germany	27	73	7.9	40.0	9
Romania	27	66	3.7	13.4	82
Switzerland	29	82	8.7	46.4	2
Estonia	31	76	6.5	23.1	65
France	31	64	6.8	35.8	22
Korea	31	71	5.4	33.2	19
Italy	32	61	3.9	30.3	52
Spain	32	67	6.1	29.9	44
United Kingdom	32	75	7.6	37.3	28
Greece	34	56	3.5	24.0	80
Poland	34	67	5.3	21.2	49
Israel	38	68	6.1	34.8	29
Japan	38	72	7.8	36.7	5
Russia	42	52	2.1	17.9	50
Nigeria	44	54	2.4	2.8	112
United States	45	76	7.1	53.1	24
Singapore	46	89	9.3	64.6	3
China	47	53	3.5	9.8	7
Mexico	48	67	3.1	15.6	27
Hong Kong	54	90	8.4	52.7	18
Botswana	63	72	5.8	16.4	96

Chart Notes:

Income Inequality – based on Gini Coefficient, 0=perfect equality, 1 (100%)= maximum inequality, from CIA World Factbook
Economic Freedom – based on Heritage Foundation Index of Economic Freedom, 100=high freedom, 0=no economic freedom. (Other indices of freedom are listed HERE) The index divides countries into five groups based on their score as follows:
- Free 100-80
- Mostly Free 80-70
- Moderately Free 70-60
- Mostly Unfree 60-50
- Repressed 50-0
Government Corruption – based on Transparency International’s Government Corruption Index, 10=low corruption, 0=high corruption
Productivity – based on the International Monetary Fund productivity per person, US dollars PPP or Purchasing Price Parity which equates different currencies based on their ability to purchase equivalent products in local markets
Economic Prosperity – based on the Legatum Prosperity Index, by the Legatum Institute, country rank out of 142

Observations

Whether the Gini Coefficient is a valid or useful measure to consider in evaluating the problem of poverty in the world is open to debate as discussed in Measuring Income Inequality. It has been used for this analysis because it is used by virtually every political leader in the world as the basis of their criticism of the world’s economic system. The following are a few selected relationships, or lack thereof, that appear instructive.

Countries with low Gini income inequality (23-29):

Sweden, Slovenia, Czech Republic, Denmark, Hungary, Norway, Slovakia, Germany, Romania, Switzerland

Economic Freedom

Only Switzerland is “Economically Free”. The rest are “Moderately Free” or “Mostly Free”
So Gini income inequality isn’t related to Economic Freedom in countries with low inequality

Government Corruption

Ranges from very low corruption (Denmark, 9.3) to moderately high corruption (Slovakia, 4.3)
So Gini income inequality isn’t related to Corruption in countries with low inequality

Productivity

Only Norway is very high with a score of 54.9, while Romania is very low with a score of 13.4
So Gini income inequality isn’t related to Productivity in countries with low inequality

Economic Prosperity

Norway and Switzerland are on the top, ranking number 1 and 2, but Romania and Hungary are at the bottom, ranking 82 and 83.
So Gini income inequality isn’t related to Economic Prosperity in countries with low inequality

Countries with high Gini income inequality (42 to 63)

Russia, Nigeria, United States, Singapore, China, Mexico, Hong Kong, Botswana

Economic Freedom in countries with high Gini income inequality

Hong Kong and Singapore are Economically Free, while Russia, Nigeria, and China are Mostly Unfree
So high Gini income inequality isn’t related to Economic Freedom in countries with high inequality

Government Corruption in countries with high Gini income inequality

Russia, Nigeria, China and Mexico are very corrupt, while Hong Kong and Singapore are some of the least corrupt in the world
So high Gini income inequality isn’t related to Government Corruption in countries with high inequality

Productivity in countries with high Gini income inequality

Nigeria has the lowest with an average per capita GDP of any country in the study at $2,800, while Singapore has the highest with an average of $64,600
So high Gini income inequality isn’t related to Productivity in countries with high inequality

Economic Prosperity in countries with high Gini income inequality

Singapore has very high economic prosperity with a rank of 3, while Nigeria is the worst in the study with a rank of 112
So high Gini income inequality isn’t related to Economic Prosperity in countries with high inequality

Lesson

The most striking observation in this study is the lack of any relationship between income inequality as measured by the Gini Coefficient and the other measures of economic wellbeing. It isn’t related to economic freedom, government corruption, productivity or economic prosperity! No pattern emerges such as “all countries with low inequality are economically prosperous” or “all countries with high inequality are economically free.”

Income Inequality, as measured by the Gini coefficient is a statistical mirage that appeals to people desire for a simple solution to complex problem of poverty.

For a more detailed consideration of the differences in income inequality Norway, Russia, Nigeria, China, Hong Kong, Singapore, and the United States, see Income Inequality in Key Countries.