Inequality in Consumption

The Gini coefficients in this study are very similar to those in Brian Perry’s annual report on poverty and inequality in New Zealand for the Ministry of Social Development.

Once again, it is confirmed that there has been no significant change in the level of inequality in New Zealand both before and after taxes since about 1990.

Eric Crampton's avatarThe Sand Pit

Income inequality measures leave a lot to be desired.

First off, inequality measures based on pre-tax income get used to argue for ever-greater redistribution. It’s a bit of a nonsense because the tax-and-transfer system is already highly redistributive. If after-tax-and-transfer income inequality worsened substantially, then there could be something to talk about. But before-tax-and-transfer figures, used in policy arguments about how much redistribution should be undertaken, are really misleading – and often deliberately so.

But even if we use after-tax-and-transfer income measures, we still have a problem. People who are relatively asset rich can draw down from savings to smooth consumption from one period to the next if they have volatile earnings. Think of the contractor who does really well one year then decides to take a lot of holiday the next year because works is slow anyway. An inequality measure based on income would not tell us as much about real inequality…

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