Country X and Country Y both exhibit high levels of income inequality when measured by earnings from employment and investments alone. However, after accounting for the effects of taxes and government benefit programs, Country X's level of income inequality is substantially lower, while Country Y's remains high. What is the most likely explanation for this difference?

Assessing Claims About Income Inequality

If a country's government implements a flat tax system (where everyone pays the same percentage of their income in taxes) and eliminates all social welfare programs, the difference between inequality measured by pre-tax/pre-transfer income and inequality measured by post-tax/post-transfer income would likely increase.

Interpreting Conflicting Reports on Inequality

Gini Coefficients for Market vs. Disposable Income in the Netherlands (2020)