Sweden's income distribution very equal

NEWS Published

ECONOMY Sweden's income distribution is very equal in international comparison. Among the 34 countries covered in a recent OECD report, only 6 have a more equal income distribution than Sweden.

Income distribution is affected by several factors, including tax levels and benefit payments of various kinds. The Swedish Expert Group for Public Economics publishes findings from studies of public sector spending in Sweden, and several show that fully 82 percent of the tax the average person pays in gets paid back to them over their life.

But a specific look at the extra 5% ‘austerity tax’, first imposed on high-income earners during the crisis years, shows that this particular tax statistically has little significance in income distribution. The OECD report shows that Sweden’s rank in the international comparison would change with only slight changes to their Gini Coefficient.

Repealing the austerity tax would only marginally lower Sweden’s rank by two. Doubling this tax would shift Sweden’s position one place up, and, for the sake of argument, if the total marginal tax was raised to 100 percent, this would move Sweden up 4 more places.

The OECD report measures the distribution of disposable income per household after tax and public benefits which the household receives, and then calculates the Gini Coefficient for all households. The Gini coefficient determines a value between 0 and 1, where 0 indicates that all households have exactly equal disposable incomes and 1 indicates that a single household has all national income and all other households have no income.

Issues related to income distribution, and taxation and benefits are analyzed in various ways. But a basic concept is to differentiate between absolute and relative effects when determining income distribution. For example, countries with high average prosperity levels (like Switzerland or Japan) can appear to have an unequal income distribution, but the ‘poorest’ in these countries have higher disposable incomes than individuals who are consider ‘rich’ in countries with low average prosperity levels (as in eastern Europe).

In Sweden, a range of studies has shown that eliminating the ‘austerity tax’ would bring positive effects, not least encouraging more individuals to develop their careers and earn more, which would increase overall tax revenues in the country.



Facts about income distribution in Sweden

• The highest 20% income earners in Sweden pay nearly half (47%) of all taxes.

• The same 20% of the population consumes just over a tenth (12%) of all public services.

• The bottom 20% income earners pay only 5% of all taxes.

• The same group of the population consume over a quarter (27%) of all public services.

• Comparing individual and household groups divided into 20 income levels shows that in Sweden:

– Individuals earning the most pay nearly nine times more tax than those who earn least.

– This tax is paid from a gross income that is approximately six times greater than those who earn the least.

– Disposable income (after tax and benefits) for the highest earning individuals ends up barely three times higher than the disposable income of the lowest earning group.

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