The combined effect of these two mechanisms is that inequality of disposable incomes is often much lower than that of private sector incomes. However, countries diff er remarkably in the extent to which they use their tax and transfer systems to reduce inequality. Figure 1 provides Gini coefficients for private sector incomes (total size of the bar) in 25 countries, mostly from the 2000s.Under the definition used here, private sector incomes include all pre-tax incomes that derive from the private sector (such as income from employment, property income and private transfers).
The graph then shows the amount by which transfer receipts (sand coloured bar) and income taxes and mandatory social insurance contributions (light red bar) reduce inequality. The overall result is a much lower Gini coefficient for disposable incomes (dark red bar).