Eli Celeste-Cohen
Professor Rosa Mule
98946- Comparative Political Economy
15 January 2025
The United States and Italy: Inequality in the 21st Century
1. Introduction
2. Literature Review
3. Economic Analysis
4. Conclusion
5. Works Cited
Abstract:
Using data from the Luxembourg Income Study, this paper compares the Italian and US
economies from 2001 to present day, outlining their key characteristics and relevant economic
policies. It first situates the economic health of both nations by assessing the disposable net
worth of the total population(s). Then it analyzes disposable net worth across wealth and income
distribution(s). It ends with a comparison of Gini coefficients of disposable household income(s).
This approach offers an in-depth understanding of economic well-being and inequality in both
nations over the past two decades.
1. Introduction
The United States and Italy have two of the largest developed economies in the world. In
2022, the United States ranked first in gross domestic product (GDP) at $25.46 trillion, while
Italy ranked tenth at $2.01 trillion. 1 This resulted in per capita GDPs of $74,554 and $33,721,
respectively.2 Over the past two decades the United States has experienced relatively stable
growth, while Italy’s has been more stagnant. 3 Italy’s stagnation is due to multiple factors,
including an aging population 4 and poor management practices.5 Stable US growth (aside from
the 2009 Recession and Covid-19 pandemic) is the result of technological innovation, a diverse
and skilled workforce, and a business-friendly culture.6
2. Literature Review
Pellegrino and Zingales write that the poor economic growth rates of Italy since the 1990s stem
from cronyism in management where loyalty is favored over merit. They calculate this has
deprived Italy of productivity growth by 13 to 16%. Cultural aspects like patronage also
negatively affect its economy. There are also important differences in the union systems, which
relates to the nature of their respective economies: Italy has 35% union density and 80% are
covered by national contracts while the U.S. has 7% union membership and more pro-business,
reinforced by anti-union policies.
3. Economic Analysis
1Worldometer
2 Worldometer
3 Our World in Data
4 Statista
5 Pellegrino and Zingales
6 ResearchFDI
Both Italy and the United States are mixed-market economies,7 but their governments
differ in the extent and ways they intervene in the free market. The United States has elements of
a liberal-market economy8 in that its regulations promote competition, and it maintains a
relatively low corporate tax rate of 21%. 9 Their financial infrastructure gives entrepreneurs wide
access to venture capital which has fostered a culture of innovation and risk-taking. US-based
startups raised $345 billion in venture capital funding in 2021, representing more than half of the
global total.10 Compared to other developed economies, the US has a relatively small social
safety net: among 37 OECD countries, the United States provides the second-least aid to families
with children as a share of GDP (0.6%)- only Turkey provides less.11 From 2000 to 2018, US
social security payments were between 4 and 5% of US GDP annually.12 In comparison, Italian
government expenditures on social protections was 21.9% of GDP in 2022.13
Relative to the US, Italy's economy has greater government intervention, though it still
relies on market forces and private enterprise. Italy operates a universal public healthcare system
and has an average life expectancy of around 84 years, three years higher than the OECD
average. Free healthcare is a social good for lower-income individuals who might otherwise be
unable to afford healthcare. Italy's corporate tax rate is currently at a record low (24%), a
7 A mixed-market economy combines free-market principles with government intervention. It lies on a spectrum
between pure capitalism and socialism.
8Hall and Soskice
9
From 2000 to 2016 the corporate tax rate was 35%, though the effective tax rate was lower. (United States Federal
Corporate Tax Rate, Trading Economics)
10 ResearchFDI
11 Aizer, Anna, et al.
12 Congressional Budget Office
13 Eurostat
significant decrease from its historical average of 38.17% (1981-2024).14 In 2019 Italy's total
expenditure on social benefits (healthcare, pensions, social housing, unemployment benefits,
etc.) totaled 28.2% of the country’s GDP, above the OECD average of 20%. 15 In 2023 Italy's
Prime Minister Giorgia Meloni cautioned that the country would no longer be able to afford its
welfare system unless it addresses its demographic decline. 16
Economic health can be demonstrated using the average purchasing power parity (in
USD) of individuals Disposable Net Worth.17 Both countries' trends for their respective total
population are presented below.
a. Disposable Net Worth by Total Population
14 Italy Corporate Tax Rate
15 Macchi
16 Reuters
17 Disposable net worth refers to the sum of non-financial and financial assets, excluding pension assets and other
long-term savings, minus total liabilities; the household is the unit of analysis. I used this metric instead of Financial
Assets (which refers to the market value of financial investments like bonds, stocks, etc.) because Disposable Net
Worth includes property valuations. (Luxembourg Income Study)
The graph illustrates a significant difference in disposable net worth between Americans
and Italians. Both countries, albeit to differing degrees, experienced economic growth until the
Great Recession (2007-2009). The US was affected more by the Great Recession than Italy due
to its greater exposure to the subprime mortgage crisis and the subsequent collapse of the
housing market, which triggered a cascading effect on the financial system and overall economy.
US disposable net worth fell sharply during the recession but rebounded, returning to growth by
2013. Italian disposable net worth, however, has not recovered to the same extent, in fact the
opposite is true. Italy's persistent struggle with productivity growth has slowed wage increases,
and prices for goods and services have risen faster than incomes, which resulted in a decline in
average purchasing power parity over the last 10 years. The disparity from the beginning of the
century has only grown: the average American has more disposable net worth while the average
Italian has less.
b. Disposable Net Worth by Wealth Percentiles
The perception of American prosperity becomes more nuanced when analyzing
disposable net worth across different wealth percentiles. Trendlines reveal that disparities largely
stem from the extreme concentration of wealth among the wealthiest 5% of Americans. For
much of the population—up to the 90th percentile—it is Italians who generally hold greater
disposable net worth. The advantage only shifts in favor of Americans within the top 10%, where
the economic dominance of the ultra-wealthy becomes apparent. The wealthiest 5%
understandably experience greater losses during recessions due to their larger financial asset
holdings, and thus have greater susceptibility to market fluctuations.
c. Disposable Net Worth by Income Deciles
A similar picture arises when analyzing disposable net worth by income deciles. Income
deciles split the total population into ten groups equal in size, with the first income decile being
the population group with the lowest disposable household income. 18 Of those in the bottom
eight income deciles, Italians consistently have greater disposable net worth than Americans.
Only in the wealthiest income deciles does the United States outperform Italy. This is partly
attributable to union membership, where Italy has a more union-friendlier culture. There also is
difference in union negotiation strategy: in contrast to the US union's corporation-level
18 Following, the 10th income decile has the highest disposable household income.
bargaining, Italy's national collective bargaining agreement covers over 80% of employment
relationships. Italy generally has stronger labor protections than the US. Also, the cost of living
in Italy is lower, especially for essentials like healthcare, higher education, and housing. This
increases disposable income, and for those with sufficient income after covering necessities, it
increases purchasing power for non-essential goods.
d. Gini Index of Disposable Household Income (Total Population)
The Gini Index19 corroborates the findings of the preceding graphs: the US demonstrates
higher levels of disposable income inequality than Italy, a disparity that has widened since 2000.
Over the period from 2000 to 2022, the average Gini Index in the United States was 0.3815,
compared to 0.3308 in Italy. The difference between average coefficients (.0507) expressed as a
percentage of Italy’s Gini coefficient (.3308) equals 15.3%, meaning that relative to Italy's level
19 The Gini Index measures income inequality within a population, ranging from 0 (perfect equality) to 1 (perfect
inequality).
of inequality and based on the Gini Index from 2000-2022, the US has about 15.3% higher
disposable household income inequality. For comparison, over the same period, Germany
(.2855), relative to Italy’s level of inequality, had 15.8% lower disposable household income
inequality. In plain language, Italy was 15.8% more unequal than Germany, and the US was
15.3% more unequal than Italy.
This inequality is rooted in structural differences between the two economies. Italy's less
consolidated wealth is partly due to fewer large corporations compared to the US; small and
medium-sized enterprises (SMEs) comprise 99.9% of its businesses.20 Italy's economy lacks a
strong presence in high-growth sectors such as finance and technology, reducing the potential for
wealth accumulation by a small number of successful ventures. Differences in in tax policies also
matter: The Biden White House estimated that, due to tax shelters, the 400 wealthiest families
paid an average federal individual income tax rate of 8.2%21 on $1.8 trillion of income from
2010 to 2018, much lower than 37%, the actual tax rate 22 for individuals making more than
$578,126.23 Other policies, such as low capital gains tax rates and high estate tax exemption
thresholds, allow the richest households to accumulate and grow their assets more aggressively.
4. Conclusion
Overall, the comparison between these two economies presents a warning tale for
policymakers who are singularly focused on economic growth. Despite two decades of
remarkable economic growth, benefits in the US have overwhelmingly gone to the super
20Global Finance Magazine
21 Leiserson and Yagan
22in 2023 (Internal Revenue Service)
23 Internal Revenue Service
wealthy. The Italian economy, while relatively stagnant, has consistently produced better results
for households in lower income and wealth percentiles. The "growth at any cost" mentality must
be considered with one that considers not only growth itself, but also who benefits from it,
ensuring gains for lower and middle classes. Italy offers an example of conscious capitalism, 24
demonstrating that free markets can effectively be combined with strategic government
intervention.
5. Works Cited
Aizer, Anna, et al. “Children and the US Social Safety Net: Balancing Disincentives for Adults
and Benefits for Children.” The Journal of Economic Perspectives : A Journal of the
American Economic Association, vol. 36, no. 2, pp. 149–174. 2022 Spring, https://doi.org/
10.1257/jep.36.2.149.
“Annual GDP Growth.” Our World in Data, ourworldindata.org/grapher/real-gdpgrowth?tab=chart&time=2000..latest&country=USA~ITA. Accessed 22 Dec. 2024.
De Luca, Vittorio. “Dealing with Unions in the USA and in Italy – Different Jurisdictions and
Different Approaches.” De Luca & Partners, 30 Sept. 2016, www.delucapartners.it/dlpinsights/dealing-with-unions-in-the-usa-and-in-italy-different-jurisdictions-and-differentapproaches-blog-invest-in-lombardy-30-settembre-2016-vittorio-de-luca/.
24 Conscious capitalism is a business philosophy that emphasizes serving all stakeholders while pursuing profit,
beyond simply maximizing shareholder value.
“Federal Income Tax Rates and Brackets.” Internal Revenue Service, The United States
Government, www.irs.gov/filing/federal-income-tax-rates-and-brackets. Accessed 22 Dec.
2024.
“GDP by Country.” Worldometer, 23 July 2023, www.worldometers.info/gdp/gdp-by-country/.
“Government Expenditure on Social Protection.” Eurostat, European Union,
ec.europa.eu/eurostat/statisticsexplained/index.php?title=Government_expenditure_on_social_protection. Accessed 22
Dec. 2024.
Hall, Peter A., and David Soskice. “Varieties of capitalism and institutional complementarities.”
Institutional Conflicts and Complementarities, 2003, pp. 43–76,
https://doi.org/10.1007/978-1-4757-4062-2_3.
“How Changing Social Security Could Affect Beneficiaries and the System’s Finances.”
Congressional Budget Office, www.cbo.gov/publication/54868. Accessed 22 Dec. 2024.
“Italy Corporate Tax Rate.” Italy Corporate Tax Rate, Trading Economics,
tradingeconomics.com/italy/corporate-tax-rate. Accessed 22 Dec. 2024.
“Italy GDP and Economic Data.” Global Finance Magazine, 26 June 2024,
gfmag.com/country/italy-gdp-countryreport/#:~:text=One%20Of%20Europe’s%20Largest%20Economies,highend%20fashion%20and%20design.
“Italy’s Welfare Unsustainable on Current Demographic Trends - PM | Reuters.” Reuters, 3 Oct.
2023, www.reuters.com/world/europe/italys-welfare-unsustainable-current-demographictrends-pm-2023-10-03/.
Leiserson, Greg, and Danny Yagan. “What Is the Average Federal Individual Income Tax Rate
on the Wealthiest Americans?” The White House, The United States Government, 23 Sept.
2021, www.whitehouse.gov/cea/written-materials/2021/09/23/what-is-the-average-federalindividual-income-tax-rate-on-the-wealthiest-americans/.
LIS Cross-National Data Center in Luxembourg, www.lisdatacenter.org/. Accessed 22 Dec.
2024.
Macchi, Lorenzo. “Welfare in Italy.” Statista, 30 Aug. 2024,
www.statista.com/topics/7567/welfare-in-italy/#topicOverview.
Pellegrino, Bruno, and Luigi Zingales. “Why Italy’s Economy Stopped Growing.” Why Italy’s
Economy Stopped Growing | Smith School, Smith Brain Trust, 20 May 2021,
www.rhsmith.umd.edu/research/why-italys-economy-stopped-growing.
“Topic: Aging Population of Italy.” Statista, www.statista.com/topics/8379/aging-population-ofitaly/#:~:text=Italy%20has%20the%20secondoldest,constantly%20increasing%20trend%20since%202009. Accessed 22 Dec. 2024.
United States Federal Corporate Tax Rate, Trading Economics, tradingeconomics.com/unitedstates/corporate-taxrate#:~:text=The%20Corporate%20Tax%20Rate%20in,source%3A%20Internal%20Reven
ue%20Service. Accessed 22 Dec. 2024.
“Why the US Leads the World in Entrepreneurship and Innovation.” ResearchFDI, 13 May
2023, researchfdi.com/why-the-us-leads-the-world-in-entrepreneurship-andinnovation/#:~:text=A%20Culture%20of%20Innovation%20and,celebrates%20innovation
%20and%20risk%2Dtaking.