Objective. This article compares recent levels and trends in economic inequality in industrialized nations, largely those belonging to the Organization for Economic Cooperation and Development. We also examine the effects of government policies and social spending efforts on inequality.
Method. We use data from the Luxembourg Income Study and the U.S. Congressional Budget Office to measure disposable money income on an annual basis for 30 nations around the end of the 20th century. We also convert the incomes of a set of rich nations into real 2000 U.S. dollars, using a standard measure of purchasing power parity to examine absolute differences in income inequality.
Results. The United States has the highest overall level of inequality of any rich OECD nation at the beginning of the 21st century. Moreover, increases in the dispersion of total household income in the United States have been as large as, or larger than, those experienced elsewhere between 1979 and 2002. Government policies and social spending have lesser effects in the United States than in any other rich nation, and both low spending and low wages have a great impact on the final income distribution, especially among the nonelderly.
Conclusion. We speculate on the role policy plays in the final determination of income inequality. We argue that these differences cannot be explained by demography (single parents, immigrants, elders) but are more likely to be attributed to American institutions and lack of spending effort on behalf of low-income working families.