Monday

4th Jul 2022

Inequality reduces economic growth, OECD says

  • The richest 10 percent across the OECD's 34 member countries earn 9.5 times as much as the poorest 10 percent (Photo: oecd.org)

Rising income inequality has cost European economies up to 10 percent in lost economic output over the past twenty years, according to a new report by the bloc's leading economic thinktank.

The report, published on Tuesday (9 December) by the Paris-based OECD, refutes the concept of 'trickle-down economics' which the political establishment in most western countries have signed up to for the past generation.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

While a raft of recently published research has demonstrated that countries with high levels of income inequality suffer from higher levels of crime and health and social costs, there has hitherto been little evidence that it acts as an active drag on economic performance.

The richest 10 percent across the OECD's 34 member countries, most of whom are EU members, now earn 9.5 times as much as the poorest 10 percent, up from a 7:1 ratio in the 1980s.

However, France, Ireland and Spain bucked the trend, where lower gaps between rich and poor actually gave a marginal boost to economic growth prior to the economic crisis, while inequality has had a more detrimental effect in the UK and Finland - where it shaved off nine percent from growth - than in Italy and Sweden which lost an estimated six percent of output between 1990 and 2010 because of rising inequality.

"Income inequality has a sizeable and statistically significant negative impact on growth," the report says, adding that "redistributive policies achieving greater equality in disposable income has no adverse growth consequences."

The research indicates that income inequality gradually lowers the educational achievement of students with poor parents, lowering social mobility in the process.

"Addressing high and growing inequality is critical to promote strong and sustained growth," said Angel Gurria, the OECD's Secretary General, at the the launch of the report.

"Countries that promote equal opportunity for all from an early age are those that will grow and prosper," he added.

In response, the OECD urges governments to hike property taxes on property and wealth and scrap tax breaks that disproportionately benefit higher earners, alongside greater support for the bottom 40 percent of earners to make sure that they are not left further behind.

"As top earners now have a greater capacity to pay taxes than ever before, governments may consider re jigging their tax systems," argues the report, adding that governments should also increase access to education, healthcare and training.

"Anti poverty programmes will not be enough," it states.

MEPs boycott awards over controversial sponsorship

Two MEPs have withdrawn their nominations from the MEPs Awards over the Swiss pharmaceutical company Novartis's participation as a sponsor — currently involved in an alleged bribery scandal in Greece.

EU Parliament interpreters stage strike

Interpreters at the European Parliament are fed up with remote interpretation, citing auditory health issues given the poor quality of the online sessions.

Opinion

The euro — who's next?

Bulgaria's target date for joining the eurozone, 1 January 2024, seems elusive. The collapse of Kiril Petkov's government, likely fresh elections, with populists trying to score cheap points against the 'diktat of the eurocrats', might well delay accession.

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic and Canadian ministers join forces to combat harmful content online
  2. Nordic Council of MinistersNordic ministers write to EU about new food labelling
  3. Nordic Council of MinistersEmerging journalists from the Nordics and Canada report the facts of the climate crisis
  4. Council of the EUEU: new rules on corporate sustainability reporting
  5. Nordic Council of MinistersNordic ministers for culture: Protect Ukraine’s cultural heritage!
  6. Reuters InstituteDigital News Report 2022

Latest News

  1. Ex-Frontex chief 'uninvited' from parliament committee
  2. Czech presidency and key nuclear/gas vote This WEEK
  3. The human rights aspects of Grenoble's 'burkini' controversy
  4. Council must act on core of EU migration package
  5. Nato's Madrid summit — key takeaways
  6. Czech presidency to fortify EU embrace of Ukraine
  7. Covid-profiting super rich should fight hunger, says UN food chief
  8. EU pollution and cancer — it doesn't have to be this way

Join EUobserver

Support quality EU news

Join us