RDP 2015-15: Household Economic Inequality in Australia 4. Cross-country Comparisons of Income and Consumption Inequality

We can compare the inequality estimates for Australia with corresponding estimates in other countries. The Organisation for Economic Co-operation and Development (OECD) has produced estimates of income inequality based on the Gini coefficient that allow for comparisons across countries. According to the latest estimates, the level of inequality in Australia is only slightly higher than the OECD average (Figure 10).

Compared with the average of the G7 countries, Australia appears to have experienced a similar increase in disposable income inequality between the mid 1990s and late 2000s. (Figure 11).

It is more difficult to find comparable estimates of consumption inequality for other developed economies. However, Krueger et al (2010) provide a summary of some country-specific studies on consumption inequality. It is possible to use the results of these studies to construct average estimates of inequality for each of the past couple of decades. These estimates are shown, alongside Australia, in Figure 12. The results should be treated with caution as most of the studies exclude durable goods from the consumption estimates, which leads to a more equal distribution and may affect the measured trends in inequality.^[14]

Notwithstanding this caveat, the results of these country-specific studies suggest that, as in the case of Australia, consumption inequality is typically lower and more stable over time than income inequality. These studies also imply that consumption inequality in Australia is higher than in countries such as Canada and Japan but lower than in the United States. Comparing the level of inequality in the 2000s to that in the 1990s, it appears that Australia experienced a slight increase in inequality very similar to that of the G7 countries.

Footnote

For more details on consumption inequality in developed countries, see the Review of Economic Dynamics special issue on ‘Cross-Sectional Facts for Macroeconomists’, which includes studies for the United States (Heathcote, Perri and Violante 2010), Canada (Brzozowski et al 2010), the United Kingdom (Blundell and Etheridge 2010), Germany (Fuchs-Schündeln, Krueger and Sommer 2010), Italy (Jappelli and Pistaferri 2010), Spain (Pijoan-Mas and Sánchez-Marcos 2010) and Sweden (Domeij and Flodén 2010). The evidence for US consumption inequality is particularly mixed, with some studies indicating that consumption inequality has been broadly unchanged (see, for example, Krueger and Perri (2005) and Meyer and Sullivan (2012)), while other studies suggest that it has risen in line with disposable income (see, for example, Aguiar and Bils (2011) and Attanasio et al (2014)). [14]