Passers-by stopped to admire a Lamborghini parked on Pohjois-Esplanadi in downtown Helsinki. Income inequality in Finland remains markedly lower than the average of all EU member states, Statistics Finland reported on Tuesday. Out of all European countries, the distribution of wealth was in 2011 the most even in Norway and the most uneven in Latvia, according to the Gini index.

In Finland, the index shows, the income of the highest-earning ten per cent was on an average 5.4 times as high as that of the lowest-earning ten per cent. Elsewhere in the European Union, the divide between the highest- and lowest-earning households was up to twice as wide.

Studies in economics have yet to provide an unambiguous answer as to whether income inequality is beneficial or detrimental for the national economy.

Matti Pohjola, a professor of economics at Aalto University, emphasises that income inequality is first and foremost a question of values. “High income inequality hinders the efficiency of the national economy. It can upset social stability and consequently prompt the wealthy to protect themselves against crime, which increases costs.”

Income inequality generally increases during periods of growth, particularly as a consequence of the rising value of securities.

Most recent studies suggest that income inequality does not promote economic growth, says Matti Tuomala, a professor of economics at the University of Tampere. “The centralisation of wealth due to large inheritances is problematic, because it can inhibit the realisation of meritocracy,” he explains.

Tuomala calls attention to the idea conceived by acclaimed economist Robert Solow that economic growth does not result in income inequality, if the public administration resists the development through tax and other measures.

In addition, Tuomala points out that comparing income inequality across countries is problematic, because the process fails to take into account the political actions taken to reduce the inequality.

“In Norway, a tax reform has reduced income inequality, because in 2004—2005 it was made impossible to re-classify earned income as capital income. For some reason, Finland has been reluctant to address the problem,” says Tuomala.

Petri Sajari – HS
Aleksi Teivainen – HT
Photo: Jussi Nukari / Lehtikuva