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DIMENSIONS of INCOME INEQUALITY in GREECE Christos Papatheodorou

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DIMENSIONS of INCOME INEQUALITY in GREECE Christos Papatheodorou DIMENSIONS OF INCOME INEQUALITY IN GREECE Christos Papatheodorou Thesis submitted for the degree of Doctor of Philosophy London School of Economics and Political Science University of London UMI Number: U12B243 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U123243 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 7)A£S£S f 7736 7 \i2Sk- To my parents ABSTRACT This thesis investigated certain dimensions of inequality in Greece that have not or have only partially been explored so far, utilising the micro-data of a survey carried out in 1988 by the National Centre for Social Research. Reviewed were relevant studies conducted in the past, and evaluated were the available statistical data and information. Certain theoretical and methodological issues that one encounters when analysing and measuring inequality were also discussed. Initially, an analysis by income source was employed, which provided valuable information on the structure and profile of income inequality in Greece. The decomposition analysis by income components showed that entrepreneurial income is the most significant contributor to overall inequality in Greece, despite the fact that it represents a relatively small fraction of household income. Income taxes and social security contribution appeared to have a very weak distributional impact on overall inequality. This impact was explored further by employing regression analysis. It was found that the share of income tax and contributions is mainly related to wages and salaries. The most effective way to maximise their distributional impact is by eliminating tax evasion among the recipients of entrepreneurial income. The average household income was found to be greatly affected by certain population characteristics, and inequality appeared to vary substantially between population subgroups. The decomposition analysis showed that in all the population groups used, inequality between groups accounted for only a very small segment of the overall inequality. Finally, the hypothesis that, in Greece, the family background is a significant factor in determining the offspring’s socio-economic status was tested. A loglinear analysis was used in order to uncover all the potentially complex relationship among the variables employed. These results suggested that people face unequal opportunities for education and unequal probabilities of falling below the poverty line due to their family background. ACKNOWLEDGEMENTS I am greatly indebted to my supervisor Professor David Piachaud for his patience, and the continual support, encouragement, and guidance offered to me throughout this project. I especially thank Nikos Petralias, a dear friend and teacher, who helped to expand my thinking and who has guided me in my early steps. I am grateful to Athena Androutsopoulou for her support, encouragement, and valuable assistance in editing this thesis. Special thanks go to Paris Yeros who greatly contributed to the editing work. Thanks are due to Frank Cowell, John Hills, Anastasia Kostaki, and Panos Tsakloglou for valuable comments and suggestions made on earlier drafts of various parts of this thesis. Special thanks should go to Vasso Riga for her support and assistance during the early stages of this project. Friends and colleagues at the London School of Economics and Political Science, the National Centre for Social Research (Greece), and the University of Athens offered useful comments and assistance. I would particularly like to thank Manolis Athanassiou, Thomas Cotoulas, Chrysoula Kappi, Theo Mitrakos, Elias Mossialos, Ceema Namazie, Ian Nish, Roy Panagiotopoulou and Gerry Redmond. Some of the findings of this project received useful feedback from participants at two CROP/INCEA workshops in the University of Crete and in Rabat, Morocco, as well as at a number of seminars in the UK and in Greece. My special appreciation goes to Maria Petmesidou for her comments. The financial assistance offered by the Greek Manpower Organisation (OAED) Scholarships, and the Titmus Research Scholarships, needs to be acknowledged. The fellowship by the European Commission under the Training and Mobility of Researchers (TMR) Scheme had provided me also with the resources and the opportunity to expand my research activities in the field. I am also grateful for the support received by the Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, which hosted this TMR project. I acknowledge also the administrative support of Jane Dickson and Sue Coles. Needless to say, I claim full responsibility for all the contents of this Thesis. TABLE OF CONTENTS Page Abstract ........................................................................................................ i Acknowledgements ........................................................................................... iii List of Tables .................................................................................................... ix List of Figures ................................................................................................... xii Chapter 1: Introduction: Objectives and Plan of the Study......................... 1 1.1: Introduction ........................................................................ 1 1.2: Objectives ........................................................................... 13 1.3: Plan of the Study ................................................................ 15 Chapter 2: Studies on Economic Inequality in Greece and Evaluation of Available Statistics............................................................ 19 2.1: Introduction ........................................................................ 19 2.2: Family Expenditure Surveys ............................................... 22 2.3: Studies based on FES ......................................................... 26 2.4: Tax Returns-Statistics of Declared Income ...................... 38 2.5: Studies Based on Tax Return Data ..................................... 40 2.6: Surveys and Studies Conducted by the National Centre for Social Research ................................................................... 44 2.7: Conclusions ........................................................................ 54 v Chapter 3: Theoretical and Conceptual Issues in Analysing and Measuring Inequality ................................................................. §8 3.1: Introduction ................................................................................. 58 3.2: Theoretical Issues ......................................................................... 60 3.3: Methodological Problems ............................................................ 66 3.4: Conclusions ................................................................................. 88 Chapter 4: Data Description, Concepts and Variable Definitions ............. 91 4.1: Introduction ................................................................................. 91 4.2: The 1988 Sample Survey ............................................................. 93 4.3: Concepts and Variable Definitions adopted by the EC Project 104 4.4: Accessing, Organising and “Cleaning” the Data for the Present Study............................................................................................. 112 4.5: Concepts and Variable Definitions in the Present Study .............. 115 4.6: Conclusions ................................................................................. 121 Chapter 5: Income Inequality in Greece: A Decomposition Analysis by Factor Components .................................................................... 125 5.1: Introduction ................................................................................. 125 5.2: The Structure of Household Income in Greece: Some Summary Findings ........................................................................................ 127 5.3: Equivalent Versus Total and Per Capita Income .......................... 130 5.4: Distribution of Equivalent Household Income by Source and Income Decile ............................................................................... 137 5.5: Decomposing Inequality by Income Source ................................ 143 vi 5.6: The Decomposition of Inequality by Income Source: Main Findings ........................................................................................ 149 5.7: Conclusions and Policy Implications ........................................... 156 Chapter 6: Income Taxes and Social Security Contributions and their Distributional Impact................................................................. 162 6.1: Introduction ................................................................................. 162 6.2: Existing Studies in Greece ........................................................... 164 6.3: Analysis by Income Deciles ......................................................... 167
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