Interpreting income distributions in a welfare state: The case of Sweden

It is shown in this paper that the distribution of purchasing power, and hence probably also ‘economic well-being’, in a Welfare State like Sweden is not tightly connected with the contribution of households in the production system. Moreover, economic inequality is drastically exaggerated when income statistics are not adjusted for differences in working time and in the time-profile of income over life. However, it is also shown that some important inequalities are not removed even by the very ambitious tax and Welfare State system in Sweden, and that some new inequalities are in fact introduced. The paper also tries to highlight the wide wedges which in an ‘advanced’ Welfare State are necessarily driven between factor costs for firms and factor rewards for households. All this holds in particular for annual income.