Income distribution in Finland remains among the most equitable in the OECD, although, as in a number of other countries, disparities have widened considerably over the past decade. While the tax and transfer system has been effective in reducing income inequality, changes made to the income tax system in the early 1990s have contributed to rising disparities by encouraging income shifting among high earners. Disparities have also been increasing across regions, particularly in labour market outcomes. This reflects the dramatic structural change that has occurred since the early 1990s, and the lack of policy success in tackling this transition. These growing disparities in regional labour market outcomes have contributed to serious demographic imbalances building up in the regions. These are especially prevalent in the smaller municipalities and challenge the very sustainability of these entities. Misuse of the tax system by high income earners should be addressed, and regional labour market discrepancies should be tackled by increasing the flexibility of the labour force. This includes sharpening incentives for retraining that would promote sectoral and regional mobility. Sustainability of the municipalities system requires further rationalisation, including forced mergers.