Inequality Flashcards
What are sources of wealth?
- inheritance
- savings
- entrepreneurship
- chance (lotto/wins)
What are the three ways to measure the distribution of income?
- Lorenz curve
- The gini coefficient
- Studying quintiles
What s the Lorenz curve?
Shows a 45 degree angle of income and population- the perfect distribution of income
- countries curves that are far away from the 45 curve have a more uneven distribution of income
What is the gini coefficient?
A statistical measure of the degree of income inequality
Perfect equality = 0
Perfect inequality = 1 (or 100)
- the more unequal the distribution of income, the higher the figure will be (high number = more uneven distribution of income)
What is studying quintiles?
The pop can be spilt into ‘quintiles’ (e.g. fifths of the pop) and then their share of income can be studied. An equal distribution of income would show the bottom quintile (or bottom 20% of the pop) with 20% of the income
What can the govs do to improve the distribution of income?
- tax and benefit system
- provision of goods and services
- minimal wage legislation
- anti-discrimination legislation
How can tax systems even the distribution of wealth?
- redistribution through taxation
- increasing the progressiveness of tax to ensure the marginal tax rate is rising, will redistribute income from the higher paid to the lower paid
—> however, a high marginal tax rate will have a disincentive effect on work, as wont want to earn as much as would just have to pay more tax. - yet it is good at reducing the gap between rich and poor and increase gov revenues to spend on other beneficial things
—> unintended consequence - if tax rich people too much, they may just leave the country, meaning less wealth in the economy
How can the benefit system help even the distribution of wealth?
Giving the poorer people more benefits will reduce the gap between rich and poor, as the money gained from progressive taxes will be given to poorer people as benefits (e.g. unemployment benefits, disability, childcare), reducing inequality.
- would cost the gov a lot and will cause an opportunity cost of money being spent elsewhere
- may create a disincentive to work, leading people to get caught in the poverty/benefit trap
How can provision of good and services even the distribution of wealth?
By providing goods like roads, parks, schools, the gov can ensure that all members of society have access to these essential services, regardless of their income level. Transfers to the poor should not consist merely of cash; they should also boost peoples capacity to generate income, today and in the future. Education and training, as well as access to healthcare, water, energy, etc as well as social assistance is critical to prevent people from falling into the poverty trap.
- reduces gap between rich and poor and reduces inequality as things poor people may not be able to afford is provided for them
- cost the gov a lot fo money
How can minimum wage legislation even the distribution of wealth?
A higher minimum wage can lift many workers out of poverty and reduce income inequality, which can lead to a more stable and robust economy. Improved worker productivity - when workers are paid a fair wage, they may be more motivated/productivity, which can boost overall economic growth.
- incentive for more people in poverty to work and earn money, so gap between rich and poor reduces
- costly for the gov, so opportunity cost for other goods
How can anti-discrimination legislation even the distribution of wealth?
Even when equal pay laws, women still earn less than men on average. This could be due to career breaks and fewer hours worked, or because women are crowded into low paid or part time jobs, which only require low skill levels. Women could also be discriminated against when it comes to promotions
- although the pay gap still exists, it is narrowing. Also might be discriminated against age, race and disabilities.
- if legislations and regulations are put in place, then more people would be able to work and earn equal amounts, reducing the impacts of inequality
- more of an incentive to get all people working
