In terms of wealth distribution, Estonia is average for Europe

TALLINN - According to the European Central Bank (ECB), the wealthiest 5 percent in the euro area hold 45 percent of net household wealth, and the distribution of assets isn't any better in Estonia either, the daily Postimees writes.

The distribution of wealth is one of the important indicators of social equality. As in most countries around the world, the distribution of wealth in Estonia is very uneven, which unfortunately limits the opportunities for a large proportion of people to receive both a good education and quality medical care.

In the first quarter of 2025, the top 10 percent of households in the euro area held 57.4 percent of total net wealth, while the top 5 percent alone accounted for 44.5 percent, according to the ECB. In contrast, the bottom 50 percent of households only held around 5 percent of wealth. These figures show the remarkable inequality in wealth distribution across Europe.

According to the ECB, the richest 5 percent of households in Estonia own 44.6 percent of total wealth. The richest 10 percent own 56.2 percent of total wealth in Estonia.

Based on the Gini coefficient, wealth is most unequally distributed in Europe in Sweden. In Estonia, the coefficient is higher than average, but has decreased in recent years, indicating that wealth inequality is decreasing.

An analysis completed this year by Switzerland's largest bank, UBS, uses the Gini coefficient to describe the extent of wealth inequality in Europe as of 2024. The indicator was introduced as early as 1912 by the Italian statistician Corrado Gini to compare wealth inequality in different countries. The coefficient is a number between 0 and 1: a higher value indicates greater inequality, while a value of 0 indicates complete equality.

According to the UBS report, wealth inequality is highest in Sweden and lowest in Slovakia. In addition to Sweden, wealth inequality is also high in Cyprus, Czechia and Latvia.

Sweden is often described as a model of social equality in many areas but its wealth distribution is among the most uneven in Europe. Lisa Pelling, the head of Stockholm-based think tank Arena Idé, offered several reasons for this. These include the abolishment of a number of wealth taxes over the past decades. Sweden also has no tax on inheritance, gifts, or property. Pointing to the very low taxes on companies, Pelling explained that this creates many "possibilities for rich people to get even richer."

While UBS estimates that Estonia's Gini coefficient is 0.64, according to the Bank of Estonia, it is as high as 0.69. According to Tairi Rõõm, head of the economic research division of the Bank of Estonia, they use the ECB's "Distributional Wealth Accounts" (DWA) report from early 2024.

According to DWA data, the Gini coefficient of net worth (assets minus liabilities) in Estonia is 0.69, according to the latest data.

"According to this, we are above the average level in comparison with euro area countries, but still relatively close to the average. The richest 5 percent of households own 45 percent of our total assets, so based on this, we are more or less in the middle in comparison with the euro area," Rõõm said.

As measured by the Gini coefficient, wealth inequality in Estonia has been slowly decreasing between 2013 and 2025: at the beginning of the period it was 0.72, and in the latest data it is 0.686. The same applies to the share of wealth of the richest 5 percent: it has decreased from 46 percent to 44.5 percent since 2013.

According to Rõõm, the level of wealth inequality in Estonia is increased by the fact that we have a lot of business assets.

"According to the latest survey of household financial behavior and consumption habits conducted in 2021, we had the highest proportion of business assets among the euro area countries," she said.

Business assets here refer to shares in companies where the owners themselves work. Business assets and equity investments in general are the most unequally distributed asset classes, and if their share in assets is large, then the assets are also more unequally distributed.

"On the other hand, our wealth inequality is offset by the fact that we have a lot of homeowners, according to the study, as many as 85 percent," Rõõm said. "Real estate is the most evenly distributed asset class, and in countries with a lot of homeowners, wealth inequality also tends to be lower."

According to Rõõm, wealth inequality is related to the tax system. Compared to the EU average, Estonia has a relatively high consumption tax burden and a low capital tax burden.

"Our labor tax burden is similar to the EU average, but unlike many European countries, we do not have a graduated income tax system," she said. "Since consumption taxes are regressive and capital taxes are progressive, our tax system is more regressive than other EU countries -- probably one of the most regressive in the EU. Such a tax system contributes to increasing wealth inequality."

There is generally no consensus in scientific literature on whether wealth inequality inhibits economic development. However, Rõõm believes that from a certain level it should have a negative impact on economic growth, but there is no single assessment of the level at which this inhibitory effect manifests itself, and therefore it is not possible to assess whether Estonia is close to this level or not.

"However, there is consensus in the scientific literature that long-term economic development and growth in well-being can be ensured by equality of opportunity in society," she said. "This refers to equal opportunities to obtain a good education, apply for jobs, and access to medical care. This allows all people to develop their abilities and use them to earn income (if they wish), which should ensure the best opportunities for economic development and growth in well-being in the long term."