The Decomposition of Income Inequality in the EU-28

Recently the social-economic divide increased in Europe which might endanger the European project. However, there is a lack of current research that provides results for policy implications to counteract this development. Therefore, this paper replicates the work of Beblo and Knaus (2001) and analyses the composition of income inequality for the EU-28 in 2014 by using data from the European Survey on Income and Living Conditions in two steps. First, I apply the Theil index and additively decompose the sources of inequality into a within- and between-component by countries, country groups and demographic groups. Second, I analyse the impact of government redistribution on income inequality. The results show that inequality is highest for households with household heads older than 59 years and lowest for households with children. Moreover, high income countries have lower inequality, higher social expenditures and redistribute more than low income countries. On country group level, I illustrate that Social-Democratic countries have the lowest income inequality and redistribute most, while the opposite holds true for Baltic countries.