An article featured in The Guardian “Which countries are the most (and least) committed to reducing Inequality?” written by Niamh McIntyre discusses country spending in relation to inequality. Oxfam and the Development Finance International researched and analyzed 18 indicators across 3 policy areas in 152 different countries to rank countries’ inequality levels. The countries are ranked according to the budget they spend on each policy area. The three policies the research focused on are taxation, social spending in areas including health, welfare and education, and labor rights. The United States is ranked out 23rd overall on the Oxford inequality index. The U.S spends 73% of its budget on social spending including social security, welfare and health (Desilver 2017), and has the highest corporate taxation rate out of high income countries. Why is the U.S on a low ranking for reducing inequality if it spends the most in two out of three policy areas? This analysis looks at high ranked countries on the Oxfam scale and highlights spending on policy areas between the United States and other countries showing inequalities despite the United States being a high income country.
Taxation is one of the policy areas that Oxfam measured, and corporate tax is a big component in how counties are ranked. Progressive structure and incidence on tax is also used. This metric is influenced by the Gini coefficient, which measures income distribution among a country. Corporate tax is a direct tax imposed on the income or capital of a corporation. Generally, countries are not seen to raise corporation tax, they have been declining. “The G20 average has declined 40% in 1990 to 28.7% in 2015” (McIntyre). Lowering corporation tax is seen as a disadvantage concerning countries’ inequality level. However, the United States has the largest corporate tax out of all major economies. Its corporation tax is at 39%, the highest percent corporation tax for high income countries. Sweden imposes 22% for corporation tax. Compared to the United States’ 23rd rank, Sweden is ranked 1st for the lowest income inequality on the Oxfam level. This means Sweden has the lowest inequality rate out of 152 countries around the world. Yet, Sweden is ranked 8th in progressive structure and incidence on tax. This metric is influenced by their different policies . Comparatively, the United States may have a worse ranking not because of corporate tax imposed, but because of other factors such as falling wages. Countries with a lower GDP than the United States nevertheless rank higher, not because they impose a higher corporate tax as the article suggests, but because these countries tend to have a more progressive minimum wages. (McIntyre).
Another policy area the Oxfam research focuses on is social spending which includes health, welfare, and education. The rankings seem to be more focused on education spending as a means of measuring inequality and less focused on other factors such as welfare and health. According to the rankings, “High-income countries tended to fare much worse than low-income countries on education spending” (McIntyre). The United States ranked 25th in spending on health, education and social protection. The lowest percent the U.S spent on education is 3%. Comparatively, Sweden spends 7.9% of its budget on education and Zimbabwe spent 29% of its budget on education.
The chart below shows results from Pew Research on how the United States spends its budget. While the U.S spends most of its budget on social services at 73%, this is divided into seven categories. Although Medicare is a large part of the budget of the U.S. it might not correlate to better health for Americans.
The Oxfam measurement does not take into account policies. Therefore, on a global scale it can be difficult to find the primary cause of inequality in each category. However, the lack of budget on education contributes to the bad inequality ranking for social spending. The graph below visually represents different countries’ budgets on education. High income countries are seen spending less on education than low income countries.
Overall rankings for inequality levels on the Oxfam list were relatively high for high income countries, except the U.S, which had a low ranking. Although the United States spends a lot of money in two out of three policy areas Oxfam is concerned with, the ranking is still low due to a number of factors. The biggest factor that contributes to the U.S.’s low ranking is spending on education. Generally, low income countries spent more of their budget on education while high income countries like the U.S did not, but what pulled other countries like Sweden to the top of the rankings were taxation policies and labour rights. Higher wages, and smarter taxation laws contributed to Sweden’s better equality and the United State’s worsening equality.
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Data/Society/Decision-making Spring 2019 