Policy Brief 58 - EU-Wide Inequality and Its Contrast During Covid-Policy Considerations
Resilience, convergence, and the role of redistributive architecture in the European Union. A Policy Brief by Stefano Filauro, and Georg Fischer
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FilePB58_EU-WIDE INEQUALITY .pdf (418.47 KB)
Executive Summary
This Policy Brief updates the empirical picture of pan-EU income inequality — treating EU citizens as if they lived in a single state, with incomes corrected for purchasing power parities — using post-pandemic EU-SILC data covering 2013–2023.
The COVID-19 crisis constituted a major stress test for EU labour markets and redistribution systems. The evidence shows that the EU passed that test with notable resilience, while also revealing fault lines that will require sustained policy attention.
In the run-up to the COVID-19 crisis, growing EU attention to inequality — reflected in the European Pillar of Social Rights, the Porto Declaration, and subsequent legislative action — signalled a stronger policy orientation with the potential to curb income disparities.
During the pandemic, instruments such as SURE reinforced this approach by supporting job-retention schemes and limiting income losses.
While the effects of these policies are typically assessed in terms of within-country inequality, their potential contribution to reducing disparities between member states — and thereby shaping inequality at the EU level—has received comparatively less attention.
Key Findings
Finding 1 — The EU redistributive system held firm. Market income inequality rose sharply in 2020, but disposable-income inequality remained broadly stable throughout the pandemic and its aftermath.
By 2023, the EU tax-benefit system reduces market inequality by around 38% — a capacity that has been slightly strengthened over time.
Redistribution in the EU operates as a structural equalising mechanism, not merely a discretionary crisis response; automatic stabilisers and existing institutions absorbed most of the shock.
Finding 2 — Between-country convergence continued. The between-country component of inequality has continued its long-run decline, accounting for less than 15% of total EU inequality by 2023 — and this trend did not stall during the COVID years.
EU inequality today is increasingly shaped by within-country distributions rather than persistent gaps between member states. Importantly, there are EU-level instruments — such as the SURE — which can address both dimensions simultaneously: it was extensively used in fiscally constrained member states, and it supported lower-income and non-standard workers, with a large potential to compress within-country inequality too.
Finding 3 — The EU–US contrast is instructive. In the US, the tax-transfer system's reduction of market inequality surged to around 27% at the height of COVID —driven by extraordinary measures such as extended unemployment benefits and the Child Tax Credit — before fading back to roughly 22%.
This highlights a key distinction: temporary policy action can reduce inequality, but it does not substitute for durable redistributive architecture.
The EU's institutionalised redistribution proved more stable than ad hoc crisis interventions.
The evidence on SURE's distributional impact is relatively solid. The evidence on the Recovery and Resilience Facility (RRF) is more uncertain: its estimated GDP effects are higher in Central, Eastern and Southern European economies, suggesting upward convergence, but a definitive assessment of its impact on income inequality is still pending. Moreover, the use of the RRF for social objectives varied widely across member states, with several higher-inequality countries not being among the most active.
The findings point to a two-pillar framework for sustaining convergence and reducing income inequality across the EU. Both pillars require active EU-level engagement, though through different mechanisms
Pillar 1: Market Convergence
Market convergence depends on economic integration, wage-setting institutions, labour market performance, and productivity catch-up.
Pillar 2: Redistributive Convergence
Redistribution remains primarily a national competence, but EU governance can drive upward convergence in redistributive capacity.
Cross-Cutting Recommendation: Maintain the Two-Pillar Balance
The two pillars are complementary, not substitutes. Under fiscal pressure, there is a risk that pre-distribution and market convergence are prioritised over redistribution — or vice versa.
The evidence in this Policy Brief shows that both matter: the EU's redistributive architecture was what held inequality stable during COVID, while market convergence has been the primary driver of between-country income equalisation over the longer run.
Sacrificing either pillar risks stalling convergence and re-amplifying income inequality, undermining social cohesion, public support for addressing new collective challenges, and ultimately the legitimacy of the European project itself.
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
