major factor that will eliminate inequality
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In particular, the higher the overall tax rate in terms of revenues as a share of GDP, the lower the Gini. This may help explain why countries like Switzerland and France, which have high tax rates on the wealthy, suffer from less incomeinequality than the U.S., which has relatively low ones.
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Natural’ causes of inequality
In an attempt to shed some light on which forces or conditions in the economy affect income inequality, we analyzed how a variety of socioeconomic variables affect the differences between each country’s Gini coefficient.
Initially we looked at how just one variable, age, affected the Gini of 30 countries. We expanded this to 53
relatively developed countries in various continents and 10 variables.
Our analysis showed that the median age of the population appears to have a significant influence on the differences in Gini coefficients, which varies inversely with the median age of the population. That is, older populations are less unequal (have a lower Gini) than younger ones, probably because as individuals age there is less disparity in their incomes. Retirement from productive endeavors is an obvious leveler of income differences. In addition, the incentive to pursue ever-higher incomes diminishes as workers approach retirement,
producing the age-earnings curve.
Age is one of the ways income disparity can be attributed to a “natural” cause, thus representing a challenge to policy makers hoping to reduce inequality, and was the most significant variable in our analysis.
Similarly, our analysis shows that greater GDP growth and the percentage of the population employed in the agriculture sector are negatively related to the Gini. That is, countries with higher economic growth or a greater the share of its workers engaged in agriculture have less inequality.