"Over the last decade, due to agglomeration processes, Israel's population exceedingly concentrated in the central district of the country, while all other districts endured a negative migration balance," says the Bank of Israel in a new study on changes in inequality in Israel. "This process was accompanied by a concentration of high quality jobs in the center, which pushed housing prices in the center up."
The Bank of Israel examined the breakdown of inequality between different districts (Jerusalem, Tel Aviv, Center, Haifa, North, and South) using the Theil index, which divides the population into groups and breaks down total inequality into “between group” and “within group” components in 1998-2011. The study found that within group inequality fell by 6% in 2000-10, but that between group inequality jumped by 84%. In 2011 (the last year for which data was analyzed), there was an unexpected drop in between group inequality that narrowed the inequality to 51%. It cautions however, "It is premature to know whether this is a change in trend or a temporary deviation."
The study's main and equally important finding is that inequality within each district fell in 2000-10, especially in the Northern, Southern, and Central districts, where there was a double-digit drop in seven years. "These results may indicate the widening of the gaps between the center and the periphery of the country," says the Bank of Israel.
The Bank of Israel cites several reasons for the widening inequality between the center and the periphery. The first is agglomeration in the Central District, while there was a negative migration balance in all other districts. A second reason is the steady cancellation of tax breaks for residents in the periphery, a burning issue that has led to a confrontation between Prime Minister Benjamin Netanyahu and Minister of Finance Yair Lapid a few weeks ago, and which has not yet been resolved.
The Bank of Israel says that, since 2003, when then-Minister of Finance Netanyahu initiated his tax cuts program, "for communities in the North, the benefits were reduced, and for hundreds of communities in the Negev, they were cancelled, which has possibly eroded the ability of the periphery to retain strong population groups and attract them from the center."
The government approved Lapid's proposals for changing the eligibility criteria for tax breaks - a change that doubles the number of beneficiary communities from 190 to 420, which means that the size of this budget, which was NIS 750 million until recently, is critical and will only be settled in talks between the Ministry of Finance and Prime Minister's Office as part of the 2015 budget talks.
The study also found that average income in the Center and Tel Aviv districts rose by 5-6%, above the national average. It rose by 2% above the average in the Haifa District, by just 0.6% in the Northern District, and by the national average in the Southern District. Average income in the Jerusalem District was 8% below the national average. These figures also help explain the widening difference in income between districts.
The study found that the Tel Aviv District and the Central District had the highest average income in 2011, at NIS 17,677 and NIS 15,369. The Northern District had the lowest average income, at NIS 12,018, just two-thirds of the level in central Israel.
Published by Globes [online], Israel business news - www.globes-online.com - on March 3, 2014
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