Israel's Income Inequality Almost as Bad as in U.S.

A report shows income inequality slightly decreased in Israel during the global recession.

Dafna Maor
Dafna Maor
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Dafna Maor
Dafna Maor

Income inequality is more pronounced in Israel than in the vast majority of the developed world, but still looks fairly reasonable compared to the United States, according to the Finance Ministry's state revenue division.

Israel's top percentile of income earners claimed a 12.7% share of total income in 2008 (standardized to 2011), among the top five of industrialized nations.

In the United States in 2011, the top percentile of income earners make 17.4% of all gross income, according to a paper published by Thomas Piketty and Emmanuel Saez. In terms of net income, the share of the upper percentile was even higher at 23%, a level last recorded in the 1920s, before U.S. President Franklin Delano Roosevelt and his successors implemented progressive policies that brought a sharp reduction in income inequality, ebbing in the '70s.

Income gaps were far less pronounced elsewhere. In Switzerland, one of the wealthiest countries in the world in terms of GDP per capita, the upper percentile took 10.5% of gross income in 2009. In Sweden, which like other Scandinavian countries has progressive taxation and social welfare policies, the share of income held by the top percentile was 7% as of 2011; in Finland it was 7.5%; and in Denmark it was an even lower 6.4%.

Even in southern European countries struck by the recession, the situation is better than in Israel: In Spain, the top 1% income earners receive 8.2% of total income in 2010; in Portugal it was 9.8% in 2010; in Italy it was 9.3% in 2009; in Ireland it was 10.5% in 2009, a figure that doesn't include the three years of severe economic depression. Similarly, the top 1%'s share of total income in 2010 in Australia was 9.2% and in Canada it was 12.2%, still less than in Israel.

The trend of income (including both work income, but also income from assets and investments) concentration among people at the top of the distribution pyramid has been on an upward trend globally in the past two to three decades. This trend has also been evident in countries that have very progressive policies, such as Sweden and Germany. At the same time, the state revenue division's report says that the economic downturn led to a slight drop in inequality in Israel, while new research shows that in the U.S. the trend of increasing wealth accruing to the top percentiles there has continued.

An Occupy Wall Street protester in 2011. Credit: Bloomberg