Exploring Rising Income Inequality in the European Union - A Public Choice Approach

Abstract

This paper aims to analyze the extent to which European Union (EU) member states succeed in diminishing income disparities using their quality of governance in the context of rising income inequality. By using the Data Envelopment Analysis (DEA) nonparametric method, the link between each country's efforts regarding their governance quality and the impact of these efforts on countering growing inequality was uncovered. The data used in this study were collected for the year 2020, for all 27 member states of the European Union. The main findings point out that, on average, EU countries are relatively inefficient, with only three countries achieving high levels of government performance, whose financial policies are reflected in reducing income inequalities, namely: Luxembourg, Cyprus, and Bulgaria. Furthermore, it was concluded that EU veteran states are relatively more effective than those that joined after 2004 in terms of eliminating income disparities through effective governance.