policymakers demonstrate

512 Alain Trannoy
question: is Europe special? Special because of the issues raised at a social
or political level or because of the nature of the contribution made by
European economists. As Angela Merkel likes to say, ‘Europe represents 7%
of the world’s population, 25% of the global GDP and 50% of the total social
spending at the world level.’ These figures tell us first that Europe is small and
rich. In terms of revealed collective preference, it also tells us that European
societies, as diverse as they are, care more on average about the distribution of
welfare than other parts of the globe. Various reasons may allow us to explain
such a pattern: European societies are rich, they are getting older (the median
age in Germany is almost ten years higher than in the US, China, Australia and
Russia), and in democratic societies this high social spending should also reflect
the preference of the citizens and tax payers. The above words of the German
Chancellor convey the fear – and this feeling is likely widespread – that social
spending is so much higher in the EU than in other parts of the world that it
is undermining Europe’s competitiveness. Notwithstanding that inequality and
social welfare are prerogatives of nation states, European institutions to some
extent play the role of a lifeguard station. The coordination of social security
rights for mobile workers, standards for health and safety in the workplace,
some EU directives on workers’ rights (maximum weekly hours of work for
instance), and a legal basis for enforcing nondiscrimination among EU citizens
can be viewed as the first steps of a more coordinated and developed policy in
the social realm as called for by some recent policy reports (Vandenbroucke,
2014, Vandenbroucke and Vanhercke, 2014, Friends of Europe, 2015).
This chapter falls into eight parts. I will start by setting the scene in defining
the concepts of inequality and welfare and the links that economists establish
between them. Next, I will proceed by showing that these two concepts raise
issues involving several sciences (social and hard). I will then outline Europe’s
inequality pattern vis-à-vis the US and the rankings of Europe nation states
according to various concepts of welfare. It turns out that Europe is at the forefront
of research in many subfields and this will be the topic of the fourth part.
After the diagnosis, comes advice for action. I will develop the fact that data
are improving, but remain largely incomplete when looking at more sophisticated
issues. Section 12.6 argues that among the most interesting and important
issues regarding inequality and welfare, some are at the intersection of several
topics surveyed by the different PI. I then zoom in on the most cutting edge
research issues in this field in my opinion. Among these issues some are more
specific to Europe and this is the focus of the last part. I will end by making recommendations
on ways to gear research in Europe about inequality and welfare
toward forefront issues.
I should also mention that there is another motive to redistributing income;
risk-aversion. There are many social risks such as illness, ageing, handicap,
long-term care, and unemployment that will partially or fully reduce the earning
capacity of an individual. Risk aversion leads people to insure against