Technical documentation sheet
en
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| Indicator name |
Income inequality reducing effect of taxes |
| Periodicity |
Annual |
| Detailed definition |
This measures the extent to which personal income taxes on their own contribute to reducing market income inequality in the distribution of income in the EU Member States.
It is calculated as the difference between the income inequality measured using the S80/S20 calculated on the basis of a market income distribution whereby income is understood to be gross of any tax, and the same measure, calculated for the same population, but based on an income definition net of taxes. In both cases, income from social transfers are omitted. |
| Breakdowns |
This indicator can be broken down to isolate the effect of social transfers solely on reducing income inequality; likewise it can be broken down to isolate the effect of taxes solely on reducing income inequality. However, it should be noted that the two breakdowns will not sum as the calculation method does not respect the mathematical property of additivity. |
| Comments/ Policy relevance |
Relevant to combatting poverty and social exclusion.
Some weaknesses have been identified in the left- and right-tail of the distribution due to underreporting and sampling error. Sample size is robust for all EU Member States.
The extent to which social transfers are considered part of an individual’s taxable liability differs across EU Member States. For countries which include social transfers in the taxable liability of the benefit recipient, this may skew the reading of this indicator. |
| Source |
EU-SILC |
| SPC portfolio section |
Social inclusion – context |
| Key dimension |
Inequality |
| Context of use |
Relevant to assessing inequality, and combatting poverty and social exclusion
This indicator measures the extent to which personal income taxes on their own contribute to reducing market income inequality in the distribution of income in the EU Member States.
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| Further details and related documents |
This indicator is calculated on the basis of the microdata collected in the EU-SILC survey. Household income is summed from all sources (employment, social transfers), the OECD equivalisation scale is applied and income is attributed to each household member to create a distribution. Shares are calculated on the basis of this distribution. |
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