Cross-national income distribution in the European Union: divergence or convergence?

Abstract

Income inequality in general can be understood in an absolute or a relative sense. Income inequality across nations can be viewed from the perspective of countries or of persons. The choice of an inequality concept and associated measure along these dimensions dramatically influences conclusions concerning cross-national income convergence in the European Union.

Notes

¹ An alternative conception of convergence is β-convergence, which means that countries with lower (higher) initial income per capita grow faster (slower). According to Rey and Montouri (1998), β-convergence has been more popular with macroeconomics, while interest in the evolution of dispersion (σ-convergence) has been more pronounced in the regional science and economic geography literature. This study does not address the issue of β-convergence.

² Of course, this exercise says nothing about changes in the income distribution within a particular country.

³ The data come from AMECO, the annual macro-economic database of the European Commission's Directorate General for Economic and Financial Affairs, see: http://europa.eu.int/comm/economy_finance/indicators/annual_macro_economic_database/ameco_en.htm

⁴ The difference in the conclusions obtained with current as opposed to constant PPPs is consistent with the finding of Sosvilla-Rivero and Gil-Pareja (2004) that there has been price convergence in the European Union.