Inequality crisis?

Consumption inequality in New Zealand is down. Not just down on the mid-1990s post-reform peak, but also down relative to 1984.

That's the conclusion out of new work by Ball and Creedy at the Treasury. I cover it over at The Initiative's Sandpit blog. But here's the key figure.

The dashed “Market” line traces Gini inequality in market earnings over the period – that’s before taxes and transfers. That series rose from the late 1980s through about 1994, then levelled off before easing back to early 1990s levels.

The solid “Disposable” line tracks Gini inequality in disposable incomes – that’s after tax and transfer. This measure rose from 1988 through to about 1994 then was basically flat. Note that the spike at 2001, and again around 2010, coincide with tax changes that encouraged income shifting from one year to another, generating the hump.

The dashed “Consumption” line is the one that’s particularly interesting. It measures inequality in real consumption. That measure rose a bit from the late 80s, plateaued through the mid-90s, and has eased off since then. Current inequality in consumption is lower than it was before the 80s reforms.

I doubt that data will have much effect on media frenzies around inequality. But at least you and I know better.