Income inequality in Greece: EU-SILC evidence

K. Chrissis and A. Livada Athens University of Economics and Business Technical Report No 271

ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS DEPARTMENT OF STATISTICS DECEMBER

2013

Abstract
The purpose of this paper is to examine income inequality in Greece from EU-SILC (European Union Survey on Income and Living Conditions) micro data. The time period of the analysis is from the year 2002 to the year 2010. The empirical findings indicate that aggregate income inequality in Greece is in higher level than the average of both European Union and Euro area. The inequality indices are decomposed by population sub-groups and by income sources. The empirical results indicate that the main contribution to total income inequality is the within inequality. The pattern is different only for the categorical variable of education. The education level attained imposes effect on the distribution of income. The decomposition by income components allows having a clear idea on how each component contributes to the total inequality. The empirical findings indicate that the main contribution to the total income inequality stems from salaries and wages, income from the self employed, and to a lesser extent from pensions and property income. The analysis for the examination of the redistributive effects of social transfers and taxes constitutes of the typical comparison of the main inequality measures (axiomatic approach) and of second order stochastic dominance. The empirical findings suggest that the social transfers smoothens inequalities. The same applies for taxes. It is not clear, though, whether the very lower income class (the lowest two deciles) benefits from the tax system. Finally, the incorporation of imputed rent (taken into account the measurement difficulties) reduces aggregate income inequality.

1. Introduction

The empirical study of economic inequality utilizes several data sources either on aggregate or on micro level. The European Union has set up a survey for collecting household data on income, poverty, social exclusion and living conditions, known as European Union Survey on Income and Living Conditions (EU SILC). This survey was launched in 2003 for Greece and can be used for the estimation of income distribution. More specifically, the European Union Survey on Income and Living Conditions provides two types of annual data: Cross sectional data with variables on income, poverty, social exclusion and other living conditions Longitudinal data for changes over time in individual level.

The data are produced on annual basis and the reference population is all private households and their current members residing in the territory of the Member State at the time of data collection. The year of the survey contains data for the previous year; thus survey for 2011 illustrates information for the year 2010 1. EU SILC data contain information for various components of income. Therefore, several variables that approach the concept of income have been calculated and have been utilized to estimate the distribution of income in the whole population. Seventeen (17) variables were compiled. The most appropriate - according to the topic - have been used for income inequality analysis [for details see Chrissis (2013)]. These variables describe the concept of income on household level. The size of the household and the age of its members are important factors, therefore the use of an equivalence scale is appropriate. In this study the "OECDmodified scale" is utilized. This scale, first proposed by Haagenars et al. (1994), assigns a value of 1 to the household head, of 0.5 to the second and each subsequent person aged 14 and over and of 0.3 to each child aged under 14. The time period of the analysis is from the year 2002 to the year 2010.

For more analytical technical details of the survey the interested user could visit the Eurostats website.

The structure of the paper is the following. Section 2 includes the empirical findings for income inequality measurement. Section 3 and section 4 describe the decomposition of income inequality by sub-groups and the decomposition of income inequality by income sources respectively. Sectio n 5 refers to the redistributive effects of social transfers and taxes whereas section 6 describes the effects of the inclusion of imputed rents in the income components. Finally, section 7 concludes.

2. Measurement of income inequality

2.1. Statistical specification for EU-SILC data

Four inequality indices (with various parameters) are compiled for the EU SILC micro data. The formulae for the indices are:

Gini index (1) Where and (3.29) and

Generalized entropy index

(2)

Atkinson index

(3)
5

Coefficient of Variation (4) The notations are

Symbol y i Variable of interest Observation number Value of the variable of interest for observation i hw Sampling weight Sampling weight for observation i hs Size variable Size of observation i Indication

hg

Group variable Group of observation i

Sample size

The estimations of aggregate inequality measures from EU SILC micro data were conducted using software STATA/SE 11.0 (module DASP ver. 2.1).

2.2. Empirical results The variable used for the estimation of income distribution is the Total net household income. This variable includes net income on household level taking into account, also, components of personal net income; it is noted that we do not take into account the negative values in the variable net cash benefits or losses from self-employment (including royalties). It has been adjusted for the size of household and the age of the members of household with the OECD-modified scale. The indices 2 that indicate the gap between the income shares of certain portions of population are S80/S20 and S90/S10, which is simply the ratio

For inequality measurement from different data sources see Chrissis and Livada (2013).

between the income share of upper and lower income classes. There has been a small decrease in both indices; nevertheless the trend is not stable for the whole period. The decrease is more obvious in the year 2009 especially for S90/S10. Both ratios indicate increase for the year 2010. This implies that the recession, which is more apparent from 2009, seems to affect the dist ribution of income with ambiguous results. The behavior of the aggregate inequality indices (GINI, Atkinson (0,5), Atkinson (1,5), General Entropy (0), General Entropy (1), General Entropy (2) and Coefficient of Variation) is rather stable with miniscule d ecline. In all cases the absolute values are slightly changing in both directions (increase or decrease); nevertheless, in all cases a small decrease is noted from 2008 to 2009 and a small increase from 2009 to 2010. This element, also, implies a miniscule decline in inequality in the beginning of economic recession in Greece and a small increase onwards. Figure 1 contains the indices of S90/S10 and S80/S20 and Figure 2 illustrates the trend of the seven aggregate inequality indices.
FIG. 1. S90/S10 AND S80/S20 FOR GREECE
14,00 12,00 10,00 8,00 6,00 4,00 2,00 0,00 2002 2003 2004 2005 S90/S10 2006 2007 S80/S20 2008 2009 2010

FIG. 2. AGGREGATE INEQUALITY INDICES FOR GREECE

0,900 0,800 0,700 0,600 0,500 0,400 0,300 0,200 0,100 0,000 2002 2003 GINI GE(1)=Theil T 2004 2005 Atkinson 0,5 GE(2) 2006 2007 Atkinson 1,5 CV 2008 2009 2010

GE(0)=Theil L

International experience

The main variable used in this paper for the estimation of income distribution is the Total net household income, which incorporates the net components of household income without taking into account negative values for net cash benefits or losses from self-employment (including royalties). This variable is slightly different in interpretation and in compilation procedure from the corresponding one (Total disposable household income (HY020)) used by ELSTAT. Figures 3 and 4 illustrate the ratio S80/S20 and Gini coefficient for total disposable household income for Greece and European Union 27 and Euro Area 17. The reason for the sort period for comparison is due to the lack of data for European averages.
FIG. 3. S80/S20 INTERNATIONAL COMPARISON I
7 6 5 4 3 2 1 0 2004 2005 2006 2007 2008 2009 Greece 2010

EU (27 countries)

Euro area (17 countries)

FIG. 4. GINI COEFFICIENT INTERNATIONAL COMPARISON II

35 34 33 32 31 30 29 28 27 2004 2005 2006 2007 2008 2009 Greece 2010

EU (27 countries)

Euro area (17 countries)

The empirical findings indicate that aggregate income inequality in Greece is in higher level than the average of both European Union and Euro area.
8

3. Decomposition of income inequality by sub-groups

3.1. Choice of categories

Certain indices can be decomposed by population subgroups in order to define which components contribute to total inequality. The decomposition procedure is applied to the Total net household income . Eight (8) categories were indented to be examined. These categories are region , urbanization , citizenship of household head (hh), education of hh, current economic status of hh, occupation status of hh, classification of activity by NACE of hh and managerial position of hh. Nonetheless, the limitations on data availability due to the response rate on these questionnaire codes pose significant obstacles.
Table 1. Valid values of the categorical variables
file Year of survey 2003 (N=6665) 6665 6665 5927 5667 5927 2004 (N=6252) 6252 6252 5522 5275 5522 2005 (N=5568) 5568 5568 4945 4702 4945 2006 (N=5700) 5700 5700 5059 4814 5059 2007 (N=5643) 5643 5643 5033 4790 5033 2008 (N=6504) 6504 6504 5803 5540 5803 2009 (N=7036) 7036 7036 6308 6048 6308 2010 (N=7005) 7005 7005 7005 6779 7005 2011 (N=6029) 6029 6029 6029 6029 6029

Region Urbanization Citizenship Education Current economic status Occupation Activity by NACE Managerial Position

4718 2480 1540

4475 2303 2615

4025 2042 2294

4142 2045 2377

4147 1994 2396

4783 2346 2877

5269 2488 3169

6388 3140 3789

5536 2334 3154

Complete data availability exists for the categorical variables of region and degree of urbanization. There are many missing values for all years for the categories occupation, activity by NACE and managerial position. The valid values are in satisfactory 3 level for citizenship, education and current economic status for 2010 and 2011 (reference year 2009 and 2010 respectively). Therefore five (5) categorical variables are utilized; region and degree of urbanization for all years and citizenship , education and current economic

According to Table 1 the coverage for both years is 100% with the exception of education for 2010 (year of survey) which is 97%.

status for 2010 and 2011 (reference year 2009 and 2010 respectively) 4. It is noted, nonetheless, that estimations have been made for all variables for all years and they are available upon request.

3.2. Technical details for income decomposition by sub-groups

Following Araar and Duclos (2009), Gini index and the Generalized Entropy indices can be decomposed in order to determine the contribution of each subgroup to total inequality. G is the number of population subgroups.

Gini index

(5)

Where the population share of group g the income share of group g between-group inequality (when each individual is assigned the average income of his group) R The residue implied by implied income overlap

It is noted that the first component is between contribution of inequality, the second is the within and the third is the overlap

Generalized entropy indices

The mathematical expression of decomposition is

(6)

Where
4

Details for the five categorical variables are presented in the Annex.

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Bf(k) Bm(k) BI(k; )

is the proportion of the population found in subgroup k is the mean income of group k is inequality within group k is population inequality if each individual in subgroup k is given the mean income of subgroup k,m(k)

3.3. Empirical findings for income decomposition by sub-groups

The decomposition procedure can indicate the contribution of the population subgroups inequality to the total inequality. According to this procedure it can be defined whether the inequality derives from factors between or within the population subgroups. The four aggregate income inequality indices [Gini coefficient, General Entropy 0 (GE0), General Entropy 1 (GE1) and General Entropy 2 (GE2)] are decomposed by five categories ( region, degree of urbanization , citizenship , education and current economic status). The main results of the decomposition of aggregate inequality indices for the categorical variable region are presented in Table 2.

Table 2. Decomposition of aggregate inequality indices by Region

ge0 within between ge1 within between ge2 within between gini within between overlap 2002
93,6% 6,4%

2003
94,4% 5,6%

2004
96,2% 3,8%

2005
96,7% 3,3%

2006
95,0% 4,9%

2007
95,5% 4,8%

2008
95,5% 4,8%

2009
95,7% 4,2%

2010
97,4% 2,5%

2002
93,6% 6,5%

2003
94,4% 5,6%

2004
96,2% 3,8%

2005
96,7% 3,3%

2006
95,1% 4,7%

2007
95,7% 4,6%

2008
95,7% 4,6%

2009
95,8% 4,1%

2010
97,4% 2,4%

2002
95,2% 4,8%

2003
95,9% 4,1%

2004
97,1% 2,9%

2005
97,6% 2,4%

2006
96,7% 3,3%

2007
97,0% 3,0%

2008
97,0% 3,0%

2009
97,1% 2,9%

2010
98,3% 1,7%

2002
18,5% 25,6% 56,0%

2003
16,8% 23,9% 59,3%

2004
14,5% 19,6% 65,9%

2005
14,9% 18,5% 66,5%

2006
15,2% 22,6% 62,2%

2007
16,8% 20,6% 62,7%

2008
16,7% 21,8% 61,6%

2009
15,8% 20,7% 63,6%

2010
13,4% 15,7% 70,9%

Source: Authors calculations

The findings indicate that decomposing aggregate inequality by region the main contribution to total income inequality is the within inequality. The relative contribution for General Entropy (0) varies from 93,6% to 97,4%, for
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General Entropy (1) varies from 93,6% to 97,4% and for General Entropy (2) varies from 95,2% to 98,3%. In all three GEs cases a small increasing trend exists. The picture is vaguer for the outcome for Gini coefficient, since a component of overlap effect exists. The within inequality contribution is smaller than the between, with no big differences nevertheless. According, thus, to the empirical results, the aggregate income inequality is mainly due to the differences in the income distribution within each of the thirteen regions.

Table 3 summarizes the results for the decomposition procedure for the categorical variable degree of urbanization .

Table 3. Decomposition of aggregate inequality indices by Degree of urbanization

ge0 within between ge1 within between ge2 within between gini within between overlap 2002
93,2% 6,8%

2003
92,7% 7,4%

2004
94,0% 5,9%

2005
94,8% 5,1%

2006
93,9% 6,0%

2007
96,1% 3,8%

2008
96,1% 3,8%

2009
95,9% 4,0%

2010
97,4% 2,6%

2002
93,3% 6,6%

2003
92,7% 7,4%

2004
94,1% 5,8%

2005
95,0% 5,0%

2006
94,2% 5,7%

2007
96,3% 3,5%

2008
96,3% 3,5%

2009
96,1% 3,9%

2010
97,4% 2,5%

2002
95,2% 4,8%

2003
94,7% 5,3%

2004
95,6% 4,4%

2005
96,3% 3,7%

2006
96,1% 3,9%

2007
97,7% 2,3%

2008
97,7% 2,3%

2009
97,3% 2,7%

2010
98,3% 1,7%

2002
38,3% 24,6% 37,1%

2003
38,4% 25,8% 35,8%

2004
39,1% 22,9% 38,0%

2005
38,7% 21,3% 39,9%

2006
38,2% 23,2% 38,7%

2007
38,5% 20,8% 40,7%

2008
39,2% 18,0% 42,7%

2009
39,4% 19,0% 41,6%

2010
42,2% 15,0% 42,8%

Source: Authors calculations

The findings indicate, once again, that the main contribution to total income inequality is the within inequality. The relative contribution for General Entropy (0) varies from 93,2% to 97,4%, for General Entropy (1) varies from 93,3% to 97,4% and for General Entropy (2) varies from 95,2% to 98,3%. In all three cases a small increasing trend exists. These findings are verified also from the outcome for Gini coefficient, despite of the existence of the overlap effect. Similar to the case of regions, the aggregate income inequality is mainly due to the differences in the income distribution within the areas of different degree of urbanization.

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The main results of the decomposition of aggregate inequality indices for the categorical variable citizenship for the years 2009 and 2010 (year of survey 2010 and 2011 respectively) are presented in Table 4.
Table 4. Decomposition of income inequality indices by citizenship

ge0 within between ge1 within between ge2 within between gini within between overlap

2009
98,3% 1,8%

2010
99,2% 0,9%

2009
98,6% 1,5%

2010
99,3% 0,8%

2009
99,1% 0,9%

2010
99,5% 0,5%

2009
91,4% 4,7% 3,8%

2010
92,7% 3,1% 4,1%

Source: Authors calculations

The results indicate that the main contribution to the total inequality is the within inequality. In all cases the relative contribution of the within component for the general entropy indices exceeds 98%. Gini coefficient indicates very high values of the within component (over 91%) as well. This certifies the a-priori expectations since the main percentage of the respondents (over 95% for both years) have Greek citizenship. Table 5 illustrates the decomposition according to the category of education.
Table 5. Decomposition of income inequality indices by education

ge0 within between ge1 within between ge2 within between gini within between overlap

2009
75,0% 23,4%

2010
74,9% 25,0%

2009
75,4% 23,7%

2010
74,0% 26,0%

2009
81,5% 18,1%

2010
80,2% 19,8%

2009
18,5% 55,7% 25,8%

2010
18,0% 50,0% 32,0%

Source: Authors calculations

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The empirical findings indicate a different pattern. The main contribution to the total inequality remains the within inequality; nevertheless the effect of between inequality is significant. The relative contribution of between inequality is 23,4%-25%, 23,7%-26,1% and 18,1%-19,8% for General Entropy (0) (1) and (2) respectively. The picture is vaguer for the outcome for Gini coefficient, since a component of overlap effect exists. The within inequality contribution is smaller than the between. According, thus, to the empirical results, the aggregate income inequality stems from the differences in the income distribution within the education classes, but there is strong evidence that inequality is affected, also, from dif ference between education classes. The final category for income decomposition by sub - groups is current economic status.

Table 6. Decomposition of income inequality indices by current economic status

ge0 within between ge1 within between ge2 within between gini within between overlap

2009
92,1% 8,3%

2010
88,8% 11,9%

2009
92,8% 7,5%

2010
89,5% 11,1%

2009
94,9% 5,1%

2010
92,6% 7,4%

2009
24,1% 27,6% 48,2%

2010
24,7% 33,3% 42,1%

Source: Authors calculations

The findings indicate, once again, that the main contribution to total income inequality is the within inequality. The relative contribution of within inequality for all General Entropy indices exceeds 88% with a decrease being detectable from 2009 to 2010. Similar to some of the previous cases, the
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overlap; effect poses certain difficulties. The within inequality contribution is smaller than the between, with no big differences nevertheless. According, thus, to the empirical results, the aggregate income inequality is mainly due to the differences in the income distribution within each of eleven c urrent economic status classes. Comparing sub- groups inequality indices Being the within inequality the main contribution to aggregate inequality, does not mean that there are no differences among the population sub -groups. The income has a more unequal distribution in the region of Ipeiros and Sterea Ellada and more equal in the region of Kriti and West Makedonia (although in certain years some indices indicate other regions for both cases; it is noted that there is evidence of increase of inequality in Attiki for 2010). As far as the categorical variable of urbanization is concerned, income inequality is more intense in the intermediate areas and less intense in the densely populated areas. For the years 2009 and 2010 (year of survey 2010 and 2011 respectively) the inequality for citizenship, education and current economic status is the following: Inequality is more intense in the Greek citizens for 2009; nonetheless this is not the case for 2010. The income has a more unequal distribution among the people that have attained first stage of tertiary education and more equal in the education class of pre primary education. As far as the current economic status is concerned, income inequality is more intense in self-employed (full time) and less intense in people that are in compulsory military or community service.

4. Decomposition of income inequality by income sources

4.1. Technical details for income decomposition by income sources

In this section the decomposition of the Gini coefficient by income components will be presented. This decomposition allows to have a clear idea on how each component contributes to the total inequality. The Araar (2006a) approach will be implemented. First, one supposes that the sum of K
15

components equals the total income and the amount of component k, noted by , equals or is greater than zero. The analytical decomposition of Gini coefficient is:

Where

is the income share of the component k,

is the level of

component k for household I and

is the single-parameter concentration

coefficient of component k. This is the mathematical expression of decomposition according to Rao (1969). Araar (2006a) 5 proposes the following decomposition of the Gini coefficient:

where definitions of symbols with (*) are similar to those already defined except that Araar uses the translated income components instead of the usual components, i.e. component and . The is the

is the variation effect (VE) and the component

constant effect (CE). It is noted that this decomposition is similar to Raos if .

For more technical details the interested reader could see Araar (2006a) and for implications of the constant effect impact could, also, see Shorrocks (1988) and Potter and Chatterjee (2002).

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4.2. Empirical findings for income decomposition by income sources

The decomposition by income sources will be applied for the Gini coefficient for the years 2002-2010 (years of reference). The income components of the underlying variable that is being used are presented in the following table.
Code 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Table 7. Income components Income component sum of net employee cash or near cash income company car sum of net cash benefits from self-employment (including royalties)_no negative values sum of unemployment benefits sum of old-age benefits sum of survivor' benefits sum of sickness benefits sum of disability benefits sum of education-related allowances income from rental of a property or land family/children related allowances social exclusion not elsewhere classified housing allowances regular inter-household cash transfers received interests, dividends, profit from capital investments in unincorporated business income received by people aged under 16

Source: Authors calculations and ELSTAT

The results of the decomposition procedure are presented in Table 8.

Table 8. Relative contribution of income components to total income inequality

Relative contribution 2002 1. net employee cash or near cash income 2. company car 3. sum of net cash benefits from selfemployment (including royalties) 4. unemployment benefits 5. old-age benefits 6. survivor' benefits 7. sickness benefits 8. disability benefits 9. educationrelated allowances 10. income from rental of a property or land 11. family/children related allowances 12. social exclusion not elsewhere classified 13. housing allowances 14. regular interhousehold cash 58,19% 0,12% Relative contribution 2003 55,08% 0,16% Relative contribution 2004 55,08% 0,16% Relative contribution 2005 54,03% 0,18% Relative contribution 2006 52,92% 0,18% Relative contribution 2007 55,09% 0,18% Relative contribution 2008 54,26% 0,20% Relative contribution 2009 52,87% 0,21% Relative contribution 2010 51,99% 0,17%

27,57%

32,93%

32,93%

31,38%

30,72%

28,93%

28,22%

27,82%

29,32%

0,46% 8,50% -0,58% 0,00% -0,03% 0,04% 5,28% 0,31% -0,09% -0,01% -1,10%

0,21% 6,88% -1,08% 0,05% 0,05% 0,09% 6,40% 0,30% -0,33% -0,01% -0,98%

0,21% 6,88% -1,08% 0,05% 0,05% 0,09% 6,40% 0,30% -0,33% -0,01% -0,98%

0,14% 8,30% -0,98% 0,02% 0,09% 0,04% 7,24% 0,27% -0,33% -0,01% -1,08%

0,10% 9,85% -1,15% 0,01% 0,13% 0,08% 7,63% 0,27% -0,34% 0,00% -1,15%

0,16% 10,55% -1,36% 0,07% 0,01% 0,09% 6,28% 0,24% -0,35% 0,01% -0,76%

0,25% 11,88% -1,02% 0,04% 0,33% 0,04% 5,87% 0,50% -0,42% 0,01% -0,89%

0,33% 14,49% -1,31% 0,05% 0,52% 0,05% 5,52% 0,41% -0,42% -0,01% -1,27%

0,50% 13,39% -1,57% 0,03% 0,12% 0,06% 6,13% 0,70% -0,28% 0,02% -1,11%

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transfers received 15. interests, dividends, profit from capital investments in unincorporated business 16. income received by people aged under 16 total

1,34%

0,27%

0,27%

0,69%

0,72%

0,85%

0,73%

0,73%

0,54%

0,00% 100,00%

0,00% 100,00%

0,00% 100,00%

0,02% 100,00%

0,01% 100,00%

0,01% 100,00%

0,00% 100,00%

0,00% 100,00%

0,00% 100,00%

Source: Authors calculations

The empirical findings indicate that the main contribution to the total income inequality stems from salaries and wages, income from the self employed, and to a lesser extent from pensions and property income. More specifically, salaries and wages are the main source of income inequality; the level varies from approximately from 52% to 58%. The second most important factor of influence in the inequality structure is the income from self -employment with a range of 28% to 33%. The volume of the effect that the other two components pose to the aggregate inequality is significantly smaller. The

level of old age benefits (mostly pensions) and property income ranges from approximately from 7% to 15% and from 5% to 8% respectively. The other income components do not pose significant effect on the aggregate income inequality. An interesting fact is that, although the time period is short, the contribution of income components changes. The effect of the salaries and wages decreases (from 58,19% to 51,99%) whereas the trend of the pensions ef fect is increasing (from 8,50% to 13,39%), although this trend seems to be interrupted for 2010. The contribution of the self-employment income yielded an increasing trend until 2005 followed by a decrease in the next years. The pattern is similar for property income with the only difference being the turning point (2007 instead of 2006).

5. Redistributive effects of social transfers and taxes

The components of total household income include various social transfers. In the following section the redistributive effects of these transfers are reviewed. Moreover, the effects of the taxation system on income distribution are analyzed.
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5.1. Redistributive effects of social transfers

The study of the income distribution before and after social transfers is important, since it reveals the impact of social policy. In order to quantify these effects two variables are compiled.

Total net household income before social transfers except old-age and survivors benefits_ no negative PY050N (HY022net_nn): This variable includes income on household level taking into account, also, components of personal income. It, therefore, includes net employee cash or near cash income, company car, net cash benefits or losses from self employment including royalties), old-age benefits, survivor' benefits, income from rental of a property or land, regular inter-household cash transfers received, interests, dividends, profit from capital investments in

unincorporated business and income received by people aged under 16. In this case we do not take into account the negative values in the variable net cash benefits or losses from self-employment (including royalties).

Total net household income before social transfers including old -age and survivors benefits_ no negative PY050N (HY023net_nn): This variable includes income on household level taking into account, also, components of personal income. It, therefore, includes n et employee cash or near cash income, company car, net cash benefits or losses from self employment (including royalties), income from rental of a property or land, regular inter-household cash transfers received, interests, dividends, profit from capital investments in unincorporated business and income received by people aged under 16. In this case we do not take into account the negative values in the variable net cash benefits or losses from self-employment (including royalties).

The effect of the two types of pensions (old age and survivors) is isolated since one of the most important policy tools is the pension system. The
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distribution of these two variables is compared with the corresponding one of the Total net household income_ no negative PY050N (HY010net_nn) . Therefore the analysis moves from the variable with the less income components (HY023_net_nn) to variable with all income components (HY010net_nn) It is noted that all variables under review have been adjusted for the size of the household according to the "OECD-modified scale". The analysis constitute of the typical comparison of the main inequality measures (axiomatic approach) and of second order stochastic dominance. In Table 9 the basic statistics, income shares and aggregate income inequality measures under the three alternative household income definitions are presented. Figure 5 presents the 10% top income shares of the three income definitions.

Table 9. Redistributive effects of social transfers 2002 Average HY023NET_NN HY022NET_NN HY010NET_NN Shares Decile_01 HY023NET_NN HY022NET_NN HY010NET_NN Decile_02 HY023NET_NN HY022NET_NN HY010NET_NN Decile_03 HY023NET_NN HY022NET_NN HY010NET_NN Decile_04 HY023NET_NN HY022NET_NN HY010NET_NN Decile_05 HY023NET_NN HY022NET_NN HY010NET_NN Decile_06 HY023NET_NN HY022NET_NN HY010NET_NN Decile_07 6.916 9.506 9.756 2003 7.127 9.934 10.211 2004 7.539 10.606 10.945 2005 7.892 11.108 11.480 2006 8.210 11.739 12.133 2007 8.577 12.472 12.905 2008 8.739 12.948 13.441 2009 8.465 12.932 13.503 2010 7.195 11.310 11.813

0,00 0,02 0,02 0,00 0,04 0,04 0,01 0,05 0,05 0,04 0,06 0,06 0,07 0,08 0,08 0,09 0,09 0,09

0,00 0,02 0,02 0,00 0,04 0,04 0,01 0,05 0,06 0,04 0,06 0,07 0,07 0,08 0,08 0,09 0,09 0,09

0,00 0,02 0,03 0,00 0,04 0,04 0,01 0,05 0,05 0,03 0,06 0,07 0,06 0,08 0,08 0,09 0,09 0,09

0,00 0,02 0,03 0,00 0,04 0,04 0,01 0,05 0,05 0,03 0,06 0,06 0,06 0,07 0,08 0,09 0,09 0,09

0,00 0,02 0,03 0,00 0,04 0,04 0,01 0,05 0,05 0,03 0,06 0,06 0,06 0,07 0,08 0,08 0,09 0,09

0,00 0,02 0,03 0,00 0,04 0,04 0,00 0,05 0,06 0,03 0,06 0,07 0,06 0,08 0,08 0,09 0,09 0,09

0,00 0,02 0,02 0,00 0,04 0,04 0,00 0,05 0,06 0,03 0,06 0,07 0,06 0,08 0,08 0,09 0,09 0,09

0,00 0,02 0,03 0,00 0,04 0,05 0,00 0,05 0,06 0,03 0,06 0,07 0,06 0,08 0,08 0,09 0,09 0,09

0,00 0,02 0,03 0,00 0,04 0,04 0,00 0,05 0,06 0,01 0,06 0,07 0,05 0,07 0,08 0,08 0,09 0,09

20

HY023NET_NN HY022NET_NN HY010NET_NN Decile_08 HY023NET_NN HY022NET_NN HY010NET_NN Decile_09 HY023NET_NN HY022NET_NN HY010NET_NN Decile_10 HY023NET_NN HY022NET_NN HY010NET_NN

0,11 0,11 0,10 0,15 0,13 0,13 0,19 0,16 0,16 0,34 0,27 0,26

0,12 0,11 0,11 0,15 0,13 0,13 0,19 0,16 0,16 0,33 0,26 0,25

0,12 0,10 0,10 0,15 0,13 0,12 0,19 0,16 0,15 0,35 0,27 0,26 0,560 0,365 0,348 0,359 0,117 0,102 0,533 0,291 0,269 0,398 0,221 0,204 0,313 0,220 0,207 0,673 0,299 0,276 1,160 0,773 0,742

0,11 0,10 0,10 0,15 0,13 0,12 0,20 0,16 0,16 0,35 0,27 0,27 0,560 0,369 0,350 0,353 0,116 0,102 0,532 0,298 0,268 0,408 0,230 0,207 0,325 0,230 0,213 0,690 0,316 0,288 1,175 0,794 0,759

0,11 0,10 0,10 0,15 0,12 0,12 0,19 0,16 0,15 0,36 0,28 0,27 0,569 0,373 0,354 0,360 0,120 0,106 0,558 0,307 0,273 0,433 0,236 0,211 0,351 0,241 0,222 0,776 0,353 0,322 1,245 0,840 0,803

0,11 0,10 0,10 0,15 0,13 0,12 0,20 0,16 0,15 0,36 0,27 0,26 0,568 0,363 0,343 0,367 0,116 0,101 0,558 0,294 0,267 0,419 0,223 0,200 0,335 0,229 0,210 0,781 0,341 0,310 1,250 0,826 0,788

0,11 0,10 0,10 0,15 0,12 0,12 0,19 0,15 0,15 0,37 0,28 0,27 0,585 0,370 0,349 0,374 0,117 0,103 0,570 0,287 0,265 0,437 0,221 0,200 0,355 0,232 0,213 0,848 0,358 0,324 1,303 0,847 0,805

0,11 0,10 0,10 0,15 0,12 0,12 0,20 0,16 0,15 0,37 0,27 0,26 0,582 0,358 0,335 0,384 0,112 0,096 0,587 0,282 0,254 0,435 0,214 0,190 0,353 0,193 0,199 0,813 0,320 0,284 1,275 0,799 0,754

0,11 0,10 0,10 0,15 0,13 0,12 0,20 0,16 0,15 0,39 0,27 0,26 0,614 0,368 0,343 0,430 0,125 0,104 0,608 0,289 0,263 0,455 0,219 0,198 0,353 0,225 0,207 0,946 0,343 0,305 1,375 0,829 0,782

GINI HY023NET_NN 0,539 0,537 HY022NET_NN 0,366 0,354 HY010NET_NN 0,352 0,340 Atkinson 0,5 HY023NET_NN 0,327 0,332 HY022NET_NN 0,116 0,112 HY010NET_NN 0,104 0,100 Atkinson 1,5 HY023NET_NN 0,461 0,491 HY022NET_NN 0,302 0,280 HY010NET_NN 0,280 0,259 GE(0)=Theil L HY023NET_NN 0,357 0,365 HY022NET_NN 0,231 0,209 HY010NET_NN 0,214 0,193 GE(1)=Theil T HY023NET_NN 0,304 0,292 HY022NET_NN 0,228 0,205 HY010NET_NN 0,216 0,193 GE(2)=CV HY023NET_NN 0,641 0,626 HY022NET_NN 0,316 0,287 HY010NET_NN 0,295 0,268 CV HY023NET_NN 1,132 1,119 HY022NET_NN 0,795 0,757 HY010NET_NN 0,769 0,732 Source: Authors calculations

21

FIG. 5. 10% Top Income Shares

0,45 0,40 0,35 0,30 0,25 0,20 0,15 0,10 0,05 0,00 2002 2003 2004 2005 2006 2007 2008 2009 2010

HY023NET_NN

HY022NET_NN

HY010NET_NN

In all three cases the nominal average income increases for the whole time period. As expected, the incorporation of social transfers increases average income. The behavior of income shares reveals more significant results. The lower classes yield an increased part of the generated income; nevertheless the income shares remain in low levels. These levels are stable over time. More specifically social transfers resulted in an increase from 0% to 2%-3% for the lower 10% income share. The corresponding figures for the next lower 10% (decile 2) modified from 0% to 4%-5%. The amounts for decile 3 show also an increase from 0%-1% to 5%-6%. The next two classes indicate an increase of proportion of generated income; nevertheless not as intense as in the previous cases. On the other side, the income shares for the upper economic classes deteriorate. This is more intense for the upper 10% income share. The proportion of income drops from a level of 34%-37% to 26%-27%. This decline is observed for the two previous 10% of the population but to a significantly less degree. The impact for the middle class is very small since the magnitude of changes in the income shares is small; almost zero for decile 6 and approximately at the level of 1% for decile 7. The usage of two variables makes feasible the discrimination of the impact of the types of social transfers. Old age pensions and survivor pensions pose the most significant effect on the behavior of income shares. This is more obvious in the three lower income shares and in the 10% top income share. The rest of
22

the social transfers impose a small impact on income distribution being negligible mainly in the middle income classes. The empirical findings suggest that the social transfers smoothens the inequalities, since the part of the income share of the upper classes is decreasing. This effect is more intense for the 10% top income share. The lower classes are benefited from the redistribution; still though the proportion of the generated income for them is in low levels. The higher parts of middle income classes are affected in low levels whereas the lower parts are benefited; in less degree, though, than the lower incom e classes. From all the types of social transfers the most significant effect derives from old age and survivors benefits. The decline of inequality is captured from the behavior of the aggregate inequality measures [Gini, Atkinson (0,5), Atkinson (1,5), General Entropy (0), General Entropy (1), General Entropy (2) and Coefficient of Variation]. Nevertheless, not all three cases yield a homogeneous pattern over time. Total net household income before social transfers except old- age and survivors benefits has a miniscule increase (except CV, which decreases), while total net household income before social transfers including old - age and survivors benefits has a minuscule decrease (except GE (2) and CV which are virtually constant). The difference in GE (2) and CV may provide a justification for the interception in the very tails of distributions (see below), since these indices are sensitive to movements in the ends of the distribution. Still though, s ocial transfers except old age and survivors benefi ts decrease inequality and then social transfers including old age and survivors benefits results in reduced aggregate income inequality.

The widely used approach to test the stochastic dominance in inequality is the comparison between the Lorenz curves. Atkinson (1970) refers that all indices that respect the Pigou-Dalton principle should indicate that inequality in A is higher than inequality in B when is everywhere above . Thus,

distribution B inequality dominates distribution A at the second order if and only if (11) where p refers to percentile [see also Araar (2006b)].
23

The empirical results are verified to a significant extent from the calculation of Lorenz curves for each distribution. The following figures illustrate the movement of Lorenz curve when social transfers are incorporated in the components of the aggregate income (the differences are available upon request ). It is apparent that the old age and survivors benefits have the most influential impact on the distribution of income.

Figure 6. Stochastic dominance for social transfers: 2002-2010

1 1

Lorenz Curves_2002

Lorenz Curves_2003

.8

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L(p)

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0
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45 line hy022net_nn_eq hy023net_nn_eq hy010net_nn_eq 45 line

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hy023net_nn_eq hy010net_nn_eq

hy022net_nn_eq

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L(p)

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Lorenz Curves_2004

Lorenz Curves_2005

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Percentiles (p)
45 line hy022net_nn_eq hy023net_nn_eq hy010net_nn_eq 45 line

Percentiles (p)
hy023net_nn_eq hy010net_nn_eq

hy022net_nn_eq

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L(p)

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Lorenz Curves_2006

Lorenz Curves_2007

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45 line hy022net_nn_eq hy023net_nn_eq hy010net_nn_eq 45 line

Percentiles (p)
hy023net_nn_eq hy010net_nn_eq

hy022net_nn_eq

24

.8

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L(p)

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Lorenz Curves_2008

Lorenz Curves_2009

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Percentiles (p)
hy023net_nn_eq hy010net_nn_eq

hy022net_nn_eq

L(p)

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Lorenz Curves_2010

.2

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Percentiles (p)
45 line hy022net_nn_eq hy023net_nn_eq hy010net_nn_eq

Source: Authors calculations

Applying the inequality dominance test we observe that there is no intersection of the Lorenz curves for the years 2009 and 2008. The other years bear ambiguous results (one to three intersections) but only in the tails of the distributions. These cases occur below 0.009 percentile (from 0.003 to 0.009 seven cases) and above 0.999 percentile (two cases) 6. The analytical results are presented in the Annex. The main conclusions do not alter. Inequality dominance test indicate that social transfers reduce aggregate income inequality.

5.2. Redistributive effects of taxes

The study of the income distribution before and wealth and income taxes is important, since it reveals the impact of taxation policy on income distribution. In order to quantify these effects one variable is compiled. Due to data restrictions the variable is calculated from the year 2006 (year of
6

The analytical results are available upon request.

25

survey 2007) onwards. The analysis, thus, is confined to a shorter time period.

Total

net

household

income

minus

taxes_

no

negative

PY050N

(HY020net_nn): This variable includes income on household level taking into account, also, components of personal income. It, therefore, includes net employee cash or near cash income, company car, net cash benefits or losses from self employment (including royalties), unemployment benefits, old -age benefits, survivor' benefits, sickness benefits, disability benefits, education-related allowances, income from rental of a property or land, family/children related allowances, social exclusion not elsewhere classified, housing allowances, regular inter-household cash transfers received, interests, dividends, profit from capital investments in unincorporated business, income received by

people aged under 16 minus regular taxes on wealth and tax on income and social insurance contributions (if applicable). In this case we do not take into account the negative values in the variable net cash benefits or losses from self-employment (including royalties). It is noted that the variable tax on income hardly contains data for social insurance contributions. This small distortion, nevertheless, should be taken into account.

The effect of wealth taxes and taxes on income is isolated in order to estimate the impact of taxation policy. The distribution of the new variable is compared with the corresponding one of the Total net household income_ no negative PY050N (HY 010net_nn) . It is noted that both variables under consideration have been adjusted for the size of the household according to the "OECD-modified scale". As in this case of the redistributive effects of social transfers, the analysis constitute of the typical comparison of the main inequality measures (axiomatic approach) and of second order stochastic dominance. In the Table 10 the basic statistics, income shares and aggregate income inequality measures under the two alternative household income definitions are presented.
26

Table 10. Redistributive effects of taxes 2006 Average HY010NET_NN HY020NET_NN Shares Decile_01 HY010NET_NN HY020NET_NN Decile_02 HY010NET_NN HY020NET_NN Decile_03 HY010NET_NN HY020NET_NN Decile_04 HY010NET_NN HY020NET_NN Decile_05 HY010NET_NN HY020NET_NN Decile_06 HY010NET_NN HY020NET_NN Decile_07 HY010NET_NN HY020NET_NN Decile_08 HY010NET_NN HY020NET_NN Decile_09 HY010NET_NN HY020NET_NN Decile_10 HY010NET_NN HY020NET_NN S90/S10 HY010NET_NN HY020NET_NN S80/S20 HY010NET_NN HY020NET_NN GINI HY010NET_NN HY020NET_NN Atkinson 0,5 HY010NET_NN HY020NET_NN Atkinson 1,5 HY010NET_NN HY020NET_NN GE(0)=Theil L HY010NET_NN HY020NET_NN GE(1)=Theil T HY010NET_NN HY020NET_NN GE(2)=CV HY010NET_NN 12.133 8.577 2007 12.905 9.340 2008 13.441 9.866 2009 13.503 10.064 2010 11.813 8.809

0,03 0,02 0,04 0,05 0,05 0,06 0,06 0,07 0,08 0,09 0,09 0,10 0,10 0,11 0,12 0,13 0,15 0,15 0,27 0,22 10,52 9,54 6,21 5,06 0,354 0,299 0,106 0,073 0,273 0,220 0,211 0,152 0,222 0,143 0,322

0,03 0,03 0,04 0,05 0,06 0,06 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,11 0,12 0,12 0,15 0,14 0,26 0,22 9,63 8,38 5,86 4,73 0,343 0,289 0,101 0,071 0,267 0,212 0,200 0,143 0,210 0,138 0,310

0,02 0,02 0,04 0,05 0,06 0,06 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,11 0,12 0,12 0,15 0,14 0,27 0,23 11,56 10,76 6,22 5,16 0,349 0,299 0,103 0,075 0,265 0,229 0,200 0,151 0,213 0,145 0,324

0,03 0,03 0,05 0,05 0,06 0,06 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,11 0,12 0,12 0,15 0,14 0,26 0,22 9,37 7,45 5,57 4,39 0,335 0,278 0,096 0,066 0,254 0,198 0,190 0,134 0,199 0,126 0,284

0,03 0,03 0,04 0,05 0,06 0,06 0,07 0,07 0,08 0,08 0,09 0,10 0,10 0,11 0,12 0,13 0,15 0,15 0,26 0,23 10,31 9,05 5,90 5,10 0,343 0,305 0,104 0,078 0,263 0,228 0,198 0,159 0,207 0,153 0,305

27

HY020NET_NN 0,184 CV HY010NET_NN 0,803 HY020NET_NN 0,607 Source: Authors calculations

0,186 0,788 0,609

0,206 0,805 0,642

0,156 0,754 0,559

0,202 0,782 0,636

The average income for the two alternative household income definitions increases for the whole time period. The average income after the implementation of taxes decreases. The behavior of income shares reveals more significant results. The income shares for the lower classes either remain unchanged or slightly increases. The levels of the proportion of generated income do not change for deciles 1 (around 3%) and 3 (around 6%) and slightly increases for decile 2 (from 4% to 5%). Small increases are, also, observed in the middle income classes; approximately 1% in each decile (4, 5, 6 and 7). In all cases the levels of income proportion are relatively stable over time. Finally, the income shares for the upper economic classes decrease. This is more intense for the upper 10% income share. The proportion of income drops from a level of 26%-27% to 22%-23%. This decline is observed for the previous 10% of the population but to a significantly less degree (around 1%). The empirical findings suggest that the taxation syst em smoothens

inequalities. The income share of the upper classes is decreasing. This effect is more intense for the 10% top income share. The lower classes are either not affected or slightly benefited from the taxes imposed. The middle income classes are, also, slightly positively affected from the taxation system. These findings are also supported by the trend of ratios S90/S10 and S80/S20. The ratios are lower when taxes are imposed. The decline of inequality is captured from the behavior of the aggregate inequality measures [Gini, Atkinson (0,5), Atkinson (1,5), General Entropy (0), General Entropy (1), General Entropy (2) and Coefficient of Variation]. For both income definitions the indices suggest for the time trend a miniscule decrease in aggregate inequality with a detectable increase in 2010.

As in the case of the analysis of redistributive effects of social transfers, the approach of stochastic dominance is applied. The empirical findings for the effects of taxation are verified to a significant extent from the calculation of Lorenz curves for each distribution. The
28

following figures illustrate the movement of Lorenz curve when taxes are imposed on the household net aggregate income.

Figure 7. Stochastic dominance for taxes: 2002-2010

1 1

Lorenz Curves_TAXES_2006

Lorenz Curves_TAXES_2007

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Lorenz Curves_TAXES 2010

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Source: Authors calculations

Applying the inequality dominance test, nevertheless, some ambiguous results are detected. In all years the Lorenz curves seem to intersect. The critical percentile is 0.107 for 2010, 0.08 for 2009, 0.137 for 2008, 0.112 for 2007 and 0.131 for 2006. Below this intersection the curve for household net aggregate income is above the corresponding curve after taxes. This imposes an ambiguity for the benefits of taxes for the lower class. Still, though, the

29

main conclusions do not alter. Inequality dominance test indicate that the taxation system results in the reduction of aggregate income inequality.

6. Income inequality and imputed rent

The data set of EU-SILC contains information on imputed rent. The imputed rent refers to the amounts that should be imputed for all households that do not pay rent. The reason for nonpayment could be either because they are owner-occupiers or because the pay rent at lower prices than the market price or because the accommodation is provided for free. In order to estimate the impact on income inequality the following variable is compiled:

Total net household income_ imputed rent _ no negative PY050N (HY010net_nn_imp): It is the total net household income_ no negative PY050N (HY010net_nn) with imputed rent.

There is difficulty in the measurement of imputed rent and this fact should be taken into consideration in the interpretation of results. It is noted that both variables under review have been adjusted for the size of the household according to the "OECD-modified scale". As in this case of the redistributive effects of social transfers and taxes, the analysis constitute of the typical comparison of the mai n inequality measures (axiomatic approach) and of second order stochastic dominance. In the Table 11 the basic statistics, income shares and aggregate income inequality measures of the comparison for the two distributions are presented.

Table 11. Impact of imputed rent 2002 Average HY010NET_NN HY010NET_NN_IMP Shares Decile_01 HY010NET_NN HY010NET_NN_IMP Decile_02 9.756 11.531 2003 10.211 12.004 2004 10.945 12.874 2005 11.480 13.596 2006 12.133 14.373 2007 12.905 15.212 2008 13.441 15.773 2009 13.503 15.837 2010 11.813 14.229

0,02 0,03

0,02 0,03

0,03 0,03

0,03 0,03

0,03 0,03

0,03 0,03

0,02 0,03

0,03 0,03

0,03 0,03

30

HY010NET_NN HY010NET_NN_IMP Decile_03 HY010NET_NN HY010NET_NN_IMP Decile_04 HY010NET_NN HY010NET_NN_IMP Decile_05 HY010NET_NN HY010NET_NN_IMP Decile_06 HY010NET_NN HY010NET_NN_IMP Decile_07 HY010NET_NN HY010NET_NN_IMP Decile_08 HY010NET_NN HY010NET_NN_IMP Decile_09 HY010NET_NN HY010NET_NN_IMP Decile_10 HY010NET_NN HY010NET_NN_IMP S90/S10 HY010NET_NN HY010NET_NN_IMP S80/S20 HY010NET_NN HY010NET_NN_IMP GINI HY010NET_NN HY010NET_NN_IMP Atkinson 0,5 HY010NET_NN HY010NET_NN_IMP Atkinson 1,5 HY010NET_NN HY010NET_NN_IMP

0,04 0,05 0,05 0,06 0,06 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,13 0,12 0,16 0,15 0,26 0,25 11,11 8,28 6,38 5,26 0,352 0,323 0,104 0,086 0,280 0,233

0,04 0,05 0,06 0,06 0,07 0,07 0,08 0,08 0,09 0,09 0,11 0,11 0,13 0,12 0,16 0,15 0,25 0,24 10,45 8,20 5,98 5,17 0,340 0,318 0,100 0,084 0,259 0,229

0,04 0,05 0,05 0,06 0,07 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,12 0,12 0,15 0,15 0,26 0,25 10,41 8,22 6,14 5,28 0,348 0,325 0,102 0,087 0,269 0,235

0,04 0,05 0,05 0,06 0,06 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,12 0,12 0,16 0,15 0,27 0,25 10,05 7,98 6,12 5,21 0,350 0,325 0,102 0,086 0,268 0,230

0,04 0,05 0,05 0,06 0,06 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,12 0,12 0,15 0,15 0,27 0,25 10,52 7,93 6,21 5,11 0,354 0,323 0,106 0,087 0,273 0,226

0,04 0,05 0,06 0,06 0,07 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,12 0,12 0,15 0,15 0,26 0,25 9,63 7,59 5,86 4,88 0,343 0,314 0,101 0,083 0,267 0,222

0,04 0,05 0,06 0,06 0,07 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,12 0,12 0,15 0,15 0,27 0,25 11,56 8,62 6,22 5,11 0,349 0,319 0,103 0,085 0,265 0,220

0,05 0,05 0,06 0,06 0,07 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,12 0,12 0,15 0,15 0,26 0,24 9,37 7,32 5,57 4,69 0,335 0,307 0,096 0,079 0,254 0,208

0,04 0,05 0,06 0,06 0,07 0,07 0,08 0,08 0,09 0,09 0,10 0,10 0,12 0,12 0,15 0,15 0,26 0,25 10,31 7,52 5,90 4,72 0,343 0,308 0,104 0,080 0,263 0,215

GE(0)=Theil L HY010NET_NN 0,214 HY010NET_NN_IMP 0,176 GE(1)=Theil T HY010NET_NN 0,216 HY010NET_NN_IMP 0,182 GE(2)=CV HY010NET_NN 0,295 HY010NET_NN_IMP 0,241 CV HY010NET_NN 0,769 HY010NET_NN_IMP 0,694 Source: Authors calculations

0,193 0,170 0,193 0,172 0,268 0,227 0,732 0,673

0,204 0,178 0,207 0,182 0,276 0,234 0,742 0,685

0,207 0,176 0,213 0,184 0,288 0,243 0,759 0,697

0,211 0,174 0,222 0,186 0,322 0,260 0,803 0,722

0,200 0,166 0,210 0,177 0,310 0,249 0,788 0,706

0,200 0,166 0,213 0,179 0,324 0,260 0,805 0,722

0,190 0,157 0,199 0,168 0,284 0,230 0,754 0,678

0,198 0,161 0,207 0,171 0,305 0,238 0,782 0,689

In both cases the average nominal income increases for the whole time period. The incorporation of imputed rent has a positive impact on average income.
31

The behavior of income shares reveals more significant results. The income shares for the lower classes either remain unchanged or slight ly increases. The levels of the proportion of generated income do not change for deciles 1 (around 3%) and 3 (around 6%) and slightly increases for decile 2 (from 4% to 5%). No significant changes are observed in the middle income classes. The same patterns relatively apply for the lower parts of upper income classes. Finally, the income shares for the 10% upper economic class deteriorate. The proportion of income drops from a level of 26% -27% to 24%25%. The empirical findings suggest that the incorporation of imputed rent smoothens the inequalities. The lower classes are either not affected or slightly benefited. The middle income classes and the lower parts of upper classes are, relatively, not affected from the incorporation of imputed rent. These findings are also supported from the ratios S90/S10 and S80/S20; both are decreasing. Finally, the decline of inequality is captured from the behavior of the aggregate inequality measures [Gini, Atkinson (0,5), Atkinson (1,5), General Entropy (0), General Entropy (1), General Entropy (2) and Coefficient of Variation]. In both cases the indices suggest for the time trend a miniscule decrease in aggregate inequality with an increase being detectable in 2010.

Figure 8. Stochastic dominance for imputed rent: 2002-2010

1 1

Lorenz Curves_Imputed_2002

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32

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.8

Lorenz Curves_Imputed_2006

Lorenz Curves_Imputed_2007

.2

.4

.6

.8

Percentiles (p)
45 line hy010net_nn_imp_eq hy010net_nn_eq 45 line

Percentiles (p)
hy010net_nn_eq

hy010net_nn_imp_eq

.8

.6

L(p)

.4

L(p)

.2

.2

.4

.6

.8

.2

.4

.6

.8

Lorenz Curves_Imputed_2008

Lorenz Curves_Imputed_2009

.2

.4

.6

.8

Percentiles (p)
45 line hy010net_nn_imp_eq hy010net_nn_eq 45 line

Percentiles (p)
hy010net_nn_eq

hy010net_nn_imp_eq

L(p)

.2

.4

.6

.8

Lorenz Curves_IMPUTED_2010

.2

.4

.6

.8

Percentiles (p)
45 line hy010net_nn_imp_eq hy010net_nn_eq

Source: Authors calculations

Applying the inequality dominance test we observe that there is no intersection of the Lorenz curves for the years 2009 and 2008. The other years indicate one to two intersections but only in the tails of the distributions.
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These cases occur below 0.003 percentile (from 0.000 to 0.003 seven cases) and above 0.999 percentile (one case) 7. The main conclusions do not alter. Inequality dominance test indicate that the incorporation of imputed rent (taken into account the measurement difficulties) reduce aggregate income inequality.

7. Conclusions

This paper utilizes data from the European Union Survey on Income and Living Conditions (EU SILC) for examining the structure of income inequality. EU SILC includes micro data on income, on household and personal level that can be used for the estimation of income d istribution. The size of the household and the age of its members are important factors, therefore the use of an equivalence scale is appropriate. In this study the "OECD-modified scale" is utilized. The time period of the analysis is from the year 2002 to the year 2010. The empirical findings indicate that aggregate income inequality in Greece is in higher level than the average of both European Union and Euro area. Certain indices can be decomposed by population subgroups in order to define what components contribute to total inequality. According to this procedure it can be defined whether the inequality derives from factors between or within the population subgroups. Five (5) categorical variables were used: region , urbanization , citizenship of household head (hh), education of household head, current economic status of household head. The empirical findings indicate that the main contribution to total income inequality is the within inequality. The pattern is different only for the categorical va riable of education. The education level attained imposes effect on the distribution of income. It is noted, nonetheless, that being the within the main contribution to aggregate inequality, does not mean that there are no differences among the sub-groups.

The analytical results are available upon request.

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The decomposition by income components allows having a clear idea on how each component (sixteen) contributes to the total inequality. The empirical findings indicate that the main contribution to the total income inequality stems from salaries and wages, income from the self employed, and to a lesser extent from pensions and property income. More specifically, salaries and wages are the main source of income inequality; the level varies from approximately from 52% to 58%. The second most important facto r of influence in the inequality structure is income from self -employment with a range of 28% to 33%. The volume of the effect that the other two components poses to the aggregate inequality is significantly smaller. The level of old age benefits (mostly pensions) and property income ranges approximately from 7% to 15% and from 5% to 8% respectively. The other income components do not pose significant effect on the aggregate income inequality. The analysis for the examination of the redistributive effects of social transfers and taxes constitutes of the typical comparison of the main inequality measures (axiomatic approach) and of second order stochastic dominance. The empirical findings suggest that the social transfers smoothens inequalities. The same applies for taxes. It is not clear, though, whether the very lower income class (the lowest two deciles) benefits from the tax system. Finally, the incorporation of imputed rent (taken into account the measurement difficulties) reduces aggregate income inequality.

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ANNEX
The following tables indicate the values of assigned values of the five (5) variables ( region, degree of urbanization , citizenship , education and current economic status).
NUTS code GR11 GR12 GR13 GR14 GR21 GR22 GR23 GR24 GR25 GR30 GR41 GR42 GR43 Source: Eurostat Table A.6.1. Codes of categorical variable Region Code Name 1 Anatoliki Makedonia, Thraki 2 Kentriki Makedonia 3 Dytiki Makedonia 4 Thessalia 5 Ipeiros 6 Ionia Nisia 7 Dytiki Ellada 8 Sterea Ellada 9 Peloponnisos 10 Attiki 11 Voreio Aigaio 12 Notio Aigaio 13 Kriti

The first column describes the regions according to NUTS level 2, the second column describes the codes used in the decomposition analysis, whereas the last column contains the names of the Greek regions.
Table A.6.2. Codes of categorical variable Degree of urbanization Degree of urbanization Densely populated area Intermediate area Thinly populated area

Code 1 2 3 Source: Eurostat

According to classification of Eurostat, the densely populated area is a contiguous set of local areas, each of which has a density superior to 500 inhabitants per square kilometer, where the total population is at least 50.000 inhabitants. The intermediate area is a contiguous set of local areas, not belonging to a densely populated area, each of which has a density superior to 100 inhabitants per square kilometer, and either with a total population for the set of at least 50.000 or adjacent to densely-populated area. The thinlypopulated area is the area that does not belong to the two previous cases. The column code describes the labels used in the analysis.
Code 1 2 Source: Eurostat Table A.6.3. Codes of categorical variable Citizenship Citizenship Greek Other

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According to Eurostat, citizenship is defined as the particular legal bond between the individual and his/her State acquired by birth or naturalization, whether by declaration, choice, option, marriage or other means according to the national legislation. Eurostat notes that it generally co rresponds to the country issuing the passport.
Table A.6.4. Codes of categorical variable Education Education (according to ISCED-97) pre-primary education primary education lower secondary education (upper) secondary education post-secondary non tertiary education first stage of tertiary education (not leading to an advanced research qualification) second stage of tertiary education (leading to an advanced research qualification)

Code 0 1 2 3 4 5 6 Source: Eurostat

According to Eurostat, educational attainment of a person is the highest level of an educational programme the person has successfully completed and the study field of the programme. The educational classification is the International Standard Classification of Education (ISCED 1997).
Table A.6.5. Codes of categorical variable Current Economic Status Self-defined current economic status Employee working full-time Employee working part-time Self-employed working full time (including family worker) Self-employed working part-time (including family worker) Unemployed Pupil, student, further training, unpaid work experience In retirement or in early retirement or has given up business Permanently disabled or/and unfit to work In compulsory military community or service Fulfilling domestic tasks and care responsibilities Other inactive person

Code 1 2 3 4 5 6 7 8 9 10 11 Source: Eurostat

According to Eurostat, the concept of current implies that any definite changes in the activity situation are taken into account. Moreover, the variable captures the persons own perception of their main activity and it may differ from the ILO (International Labor Organization) concept to the extent that peoples perception could be different from the strict d efinitions of ILO. The self-declared main activity status is, in principle, determined on the basis of the most time spent. This classification is applied from 2009 and onwards; for the previous years the codes were slightly different (9 in total).

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References
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