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FinObservatory

Redistribution

What taxes and transfers do to inequality

Every rich country produces a highly unequal distribution of market income and then compresses it with cash taxes and transfers. How far it compresses is measurable: the gap between the Gini coefficient of market income and of disposable income. Across 45 economies in the OECD Income Distribution Database, the median cut is 33 percent. The deep welfare states of central and northern Europe cut market inequality by 40 to 48 percent; the United States, by 22 percent, from a market Gini of 0.506 to a disposable Gini of 0.394 in 2023. This page measures that fiscal effect, and states plainly what it leaves out.

0.51 → 0.39
US Gini, market to disposable income
−22% | OECD IDD 2023
−48%
Deepest fiscal redistribution: Slovakia
market to disposable Gini | 2023
−33%
Median across 45 economies
latest year each | OECD IDD
No. 1 of 38
US net-total social spending rank
vs No. 22 on gross public | SOCX 2021
$26,200 → $44,800
US lowest-quintile income, before to after
transfers and taxes | CBO 2022
60% → 49%
US top-quintile income share, market to after
2022, from 48% market in 1979

Data as of OECD IDD (latest year per country to 2025), CBO 1979–2022, OECD SOCX, IMF GFS COFOG

This measures fiscal redistribution, not the whole of it. The market-minus-disposable gap captures what cash taxes and cash transfers do to inequality at a point in time. It excludes predistribution: the wage compression, collective bargaining, and minimum wages that shape market incomes before any tax or transfer, so a country can reach a low disposable Gini by compressing market incomes rather than by redistributing heavily. It excludes in-kind services: publicly provided health care and education reduce the inequality of living standards but are not cash and do not enter a disposable-income Gini. And a single year is not a lifetime: much of what public pensions and social insurance do is move income across a person's own life course rather than between rich and poor households. Each of these narrows measured inequality further or differently; none is captured here. The measure is reported precisely and its boundary stated, never as the last word.

Market versus disposable inequality, ranked

Each row is one economy at its latest available year (current-series income definition, total population). The amber dot is the Gini of market income, before taxes and transfers; the blue dot is the Gini of disposable income, after taxes and transfers. The bar between them is the fiscal redistribution, and the label on the right is the percentage reduction. Slovakia cuts its market Gini by 48 percent; the United States by 22 percent; India, with the least redistributive system in the panel and an older data year, by 3 percent.

Gini of market income (before taxes and transfers)Gini of disposable income (after taxes and transfers)
Hover a row for the exact market and disposable Gini and the reduction. Bar length is the fiscal redistribution.

Source: OECD Income Distribution Database Equivalised household income, ranked over individuals. Latest year differs by country and is shown on each row (two-digit); the 2012 methodology break is respected (current series only). Bangladesh is not covered by the OECD IDD and is therefore absent. Methodology

How redistribution has moved over time

The percentage by which each country's tax-and-transfer system reduced its market Gini, current series. The ranking is stable: France, Germany and Finland redistribute in the 40 to 47 percent range, the United Kingdom in the mid-30s, and the United States consistently the least of the five, around 22 percent. A gap in a line is a year the OECD did not publish a market and disposable pair for that country; nothing is interpolated.

United StatesUnited KingdomGermanyFranceFinland
Hover for each country's percentage reduction in the Gini from taxes and transfers

Source: OECD Income Distribution Database Percentage reduction = (Gini market - Gini disposable) / Gini market. Current series (income definition since 2012), total population. Methodology

The US engine room: income shares before and after

The Congressional Budget Office measures the same compression for the United States on its own income concepts, 1979 to 2022. The top quintile's share of market income rose from 47.9 percent in 1979 to 59.9 percent in 2022; taxes and transfers pull its 2022 share down to 49.0 percent. The lowest quintile's 2022 market-income share of 3.0 percent is lifted to 7.4 percent. CBO's own reading of the full record is that the degree to which transfers and taxes reduce income inequality has increased over the past four decades.

Top quintile, marketTop quintile, after transfers and taxesLowest quintile, marketLowest quintile, after transfers and taxes
Hover for each quintile's share of income under market and after-transfers-and-taxes concepts

Source: CBO, The Distribution of Household Income, 2022 Households ranked by income before transfers and taxes, all households. Market income excludes social insurance; income after transfers and taxes adds means-tested transfers and subtracts federal taxes. Methodology

Transfers versus taxes, by quintile, 2022

Where the redistribution happens, in average dollars per household. Market income plus social insurance benefits is income before transfers and taxes; adding means-tested transfers and subtracting federal taxes gives income after transfers and taxes. The lowest quintile receives an effective means-tested transfer rate of 72 percent of its pre-transfer income and pays a 1.4 percent federal tax rate; the highest quintile receives 0.4 percent and pays 25.9 percent. Transfers do most of the lifting at the bottom; taxes do most of the trimming at the top.

QuintileMarket income+ Social insurance= Before transfers, taxes+ Means-tested transfers− Federal taxes= After transfers, taxes
Lowest$19,000$7,200$26,200$19,000$400$44,800
Second$44,000$15,200$59,100$9,600$5,600$63,100
Middle$75,600$18,400$94,000$5,600$12,600$87,000
Fourth$125,600$17,500$143,100$3,000$25,100$121,100
Highest$396,500$16,100$412,600$1,700$106,700$307,600

Source: CBO, The Distribution of Household Income, 2022 Average income per household in 2022 dollars, all households ranked by income before transfers and taxes. Federal taxes are individual income, payroll, corporate income and excise taxes; state and local taxes are not netted. Methodology

The spending side: social expenditure as a share of GDP

Redistribution is paid for out of social spending. Gross public social spending, the standard headline, is highest in France, Austria and Finland at around 30 percent of GDP and low in the United States at n/a percent. But that headline understates and mis-ranks how much a country devotes to social purposes.

EconomyPublic social spending, % GDPYear
Austria AUT31.62024
Finland FIN31.42024
France FRA30.62024
Belgium BEL28.62024
Germany DEU27.92024
Italy ITA27.62024
Denmark DNK26.42024
Sweden SWE26.12024
Spain ESP25.92024
Japan JPN24.72022
New Zealand NZL24.62022
Portugal PRT24.12024
Norway NOR24.12024
Luxembourg LUX24.02024
Greece GRC23.72024
Poland POL23.12024
Slovenia SVN23.02024
United Kingdom GBR23.02023

Source: OECD Social Expenditure Database (SOCX) Gross public social spending (SOCX expenditure source ES10), latest year per country. Includes public spending on health, which the IMF COFOG social-protection series below excludes. Methodology

Gross public is not the whole story. Netting out the tax treatment of benefits, adding tax breaks with a social purpose (favourable tax treatment of employer health benefits and of pension saving), and counting mandatory and voluntary private social spending moves the ranking sharply. On this net-total basis in 2021, the United States rises from No. 22 on gross public to No. 1 of 38: its net-total social spending of 33.2 percent of GDP tops the panel, above France's 31.9 percent. The same US that spends little publicly channels a large share through the tax code and private plans.
EconomyGross public, % GDPNet total, % GDP
United States USA21.633.2
France FRA32.731.9
Austria AUT32.029.4
Germany DEU28.928.5
Japan JPN25.426.9

OECD SOCX, 2021 (the latest year the net-total series is published). Gross public is expenditure source ES10, net total ES50.

Broader coverage: general-government social protection

For countries the OECD does not cover, the IMF's Government Finance Statistics report general-government spending on social protection as a share of GDP, 87 economies in all, 45 of them outside the OECD IDD panel. This is a narrower concept than SOCX public social spending: COFOG classes health under a separate function, so social protection here excludes health and its levels are lower and not comparable. On this measure the United States spends 7.8 percent of GDP (2024), against more than 20 percent in the European welfare leaders.

EconomySocial protection, % GDPYear
Finland FIN25.72023
France FRA23.32023
Austria AUT23.22024
Italy ITA21.42024
Belgium BEL20.62024
Germany DEU20.42024
Luxembourg LUX19.92024
Denmark DNK19.62024
Sweden SWE19.22024
Spain ESP18.72024
Norway NOR18.52024
Greece GRC18.52023

Source: IMF Government Finance Statistics (GFS COFOG) IMF GFS COFOG division GF10 (social protection), general government (S13), % of GDP, latest year per economy. Excludes health (COFOG division GF07); not comparable to SOCX public social spending above. Methodology

Related: income and wealth concentration across countries, on inequality; the household net worth that redistribution acts on, on wealth. See the full methodology for income concepts, the 2012 series break, gross-versus-net spending, verification anchors, and the license notes.