Governments can help ensure economic opportunity and security for households through policies that help ensure people have social and economic opportunities in areas such as education and employment. Where households continue to experience adverse economic outcomes, governments can support them directly by redistributing income towards low-income households. Direct measures to reduce poverty and inequality include progressive taxes, benefits and cash transfers. Governments may also use indirect measures, such as subsidies or price controls.
Government redistribution of income reduces relative poverty in every OECD country for which data are available (Figure 3.13). On average across the OECD, 27% of people are in relative poverty before taxes and transfers such as child, housing or unemployment benefits. This falls to 11% after taxes and transfers have been taken into account. The greatest reductions in relative poverty through redistribution are in France (-28 percentage points) and Finland (-27 p.p.). Overall, relative poverty rates after taxes and transfers have altered little across the OECD over the past decade, falling from 12% in 2012 to 11% in 2021. However, 13 countries have seen rates fall by more than 1 p.p. over that period. The largest falls were in Mexico (-3.9 p.p.) and Türkiye (-3.7 p.p.).
The effectiveness of government actions in mitigating disparities in relative income can also be examined using the Gini coefficient. This measures income inequality, from 0 (perfect equality) to 1 (perfect inequality). Government redistribution reduces inequality in every OECD country for which data are available (Figure 3.14). The average level of inequality across the OECD in 2021 was 0.46 before taxes and transfers, and 0.32 after, with taxes and transfers resulting in the greatest reductions in inequality in Czechia and Finland (both -0.24 points). However, there has been little overall change in inequality after taxes and transfers in the past decade, averaging 0.32 in both 2012 and 2021 (OECD, 2024). The largest reductions in inequality over that period were in Korea and Mexico (both -0.06 points).
