Within-country differences in real income growth widened in most countries due to inflation and regional GDP per capita and income per capita growth were not necessarily aligned
With inflation at its highest levels in 40 years in most OECD countries in 2022, variations in overall inflation across regions were also higher. In 2019-23, Canada, Italy, Türkiye and the United States had the largest disparities in inflation across regions, with differences above two p.p. per year between the regions with the highest and lowest inflation.
In this context, within-country differences in real income growth widened in most countries in the last five years. The annual growth rate of real income (household income after adjusting for inflation) decreased from 2% to 0.85% in 2019-22 compared to 2014‑18, on average, across 171 regions in 10 OECD countries with available data (Figure 1.13). The difference between the regions with the highest and lowest rates increased from 2.6 p.p. on average across 2014‑18 to 3.6 p.p. in 2019-22. Only Australia, Korea and Portugal have reduced their regional differences in real income growth rates out of ten OECD countries. In contrast, Canada, Spain and the United States recorded the widest gaps over the past five years, exceeding five p.p.
Real disposable income and GDP growth per capita in regions are not expected to align over the short term. However, comparing the two is informative in terms of whether there are spatial and longitudinal differences in any transmission channels, including mechanisms such as fiscal redistribution and automatic stabilisers during shocks. Between 2019 and 2022, real GDP per capita growth and real household disposable income per capita growth differed by an average of 0.3 p.p. across large regions in 10 countries with available data (Figure 1.14). In all these countries, there were regions where real GDP growth was either higher or lower than income growth. Denmark, Germany and Poland had the smallest gaps, while Australia, Canada and the United States had the largest. This could be due to different levels of fiscal redistribution and/or the presence of regions specialised in the primary sector, where GDP growth was 1.2 p.p. lower than income growth. In contrast to regions specialised in the primary sector, GDP per capita growth in capital city regions was 0.6 p.p. above income per capita growth, on average, across 11 countries with data.
In 2022, gaps between regional types differ when measured with disposable per capita income instead of GDP per capita. This is expected, as income generated from economic activities in one region can flow to businesses or workers located elsewhere in the country or abroad, especially in regions with high levels of multinational corporate or primary sector activities. Moreover, regions with lower GDP per capita may receive government transfers that compensate for GDP per capita gaps. Across 30 countries with available data, GDP per capita in large regions is, on average, 2.04 times the level of disposable income per capita (1.91 excluding Ireland and Türkiye, which show exceptionally large gaps) (Figure 1.15). However, this gap is larger in capital-city regions at 2.29 (or 2.41 when including Ireland and Türkiye). In smaller countries like Belgium, Denmark and Ireland, as well as in the United States, capital-city regions have GDP per capita more than three times higher than disposable income. In contrast, regions focused on the primary sector generally have smaller gaps, except in countries like Australia and Canada where regions specialised in the primary sector show the largest differences.
Similarly, when comparing metropolitan and non-metropolitan regions, disposable income per capita gaps are narrower than GDP per capita. Across 14 countries with available data, the median non-metropolitan region has 76% of the GDP per capita and 92% of metropolitan regions’ disposable income per capita level (Figure 1.16). In all countries, the gap is smaller when measured with disposable income, except in Korea. Belgium, Czechia, Norway and Slovenia show differences of 20 p.p. or more between the 2 measures. Ireland has the biggest discrepancy due partly to significant foreign investment. In contrast, Finland, New Zealand and Sweden show the smallest differences.
