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    The authors grateful to the European Commission [DYNREG Programme, contract no 028818 (CIT5)] and Eurostat for granting access to the European Community Household Panel (ECHP). The work was also part of the research programme of the independent UK Spatial Economics Research Centre funded by the Economic and Social Research Council (ESRC), Department for Business, Enterprise and Regulatory Reform, Communities and Local Government, and the Welsh Assembly Government. The support of the funders is acknowledged. The views expressed are those of the authors and do not represent the views of the funders or of Eurostat. An early version of the paper was presented at the 46th Congress of the European Regional Science Association in Volos.


ABSTRACT This paper provides an empirical study of the determinants of income inequality across regions of the EU. Using the European Community Household Panel dataset for 102 regions over the period 1995–2000, it analyses how microeconomic changes in human capital distribution affect income inequality for the population as a whole and for normally working people. The different static and dynamic panel data analyses conducted reveal that the relationship between income per capita and income inequality, as well as between a good human capital endowment and income inequality is positive. High levels of inequality in educational attainment are also associated with higher income inequality. The above results are robust to changes in the definition of income distribution and may be interpreted as a sign of the responsiveness of the EU labor market to differences in qualifications and skills. Other results indicate that population ageing, female participation in the labor force, urbanization, agriculture, and industry are negatively associated to income inequality, while unemployment and the presence of a strong financial sector positively affect inequality. Finally, income inequality is lower in social-democratic welfare states, in Protestant areas, and in regions with Nordic family structures.