The decomposition of income inequality in the EU-28

This paper analyses the structure of the European income inequality by a decompo-sition in a within- and between-component. It illustrates a replication of the work of Beblo and Knaus (Rev Income Wealth 47(3):301–333, 2001) and decomposes the income inequality for the EU-28 in 2014 by using data from the European Survey on Income and Living Conditions. The Theil index is applied to additively decom-pose the sources of inequality into a within- and between-component by countries, country groups and demographic groups. This is done by using equivalised dispos-able household income and income before transfers and taxes. The results show that inequality, with regard to disposable income, is highest for households with house-hold heads older than 59 years and lowest for households with children. Moreover, high income countries have lower inequality, higher social expenditures and show a stronger relative reduction of income inequality after transfers and taxes than low income countries. On country group level, Social-Democratic countries have the lowest income inequality and redistribute most, while the opposite holds true for Baltic countries.