The Distribution Of Wealth- Income And Inequality Flashcards
(41 cards)
Income
Flow of money going to factors of production
Wages and saleries paid to people in work
Money paid to people recieving benefits - sate pension, tax credits
Profits flowing to businesses and corperations
Dividends distributed to. Shareholders
Retal income to theose who own and lease property
Interest paid to owners of capital who hold money in deposit accounts or who hold bonds
Wealth
Stock concept
Can be held differently
Likely to be more unequal as those with wealth can use it to buy further assets and make investments
Ways in which wealth can be held
Savings in commercial bank deposits
Ownership of shares issued by sticj market listed companies and equity stakes in private buisnesses
Ownership of property
Wealth held in corperate bonds and gov bonds
Wealth tied in private pension schoemes- life assurance schemes
Lorenz curve
Visual interpretation of income/wealth of inequality
Closer to line of euqality (directlty through middle) more waul
Gini coefficient
Condenses the entire income distribution for a country into a signle numebr 0-1
Higher the number, greater the degree of income inequality
Above 0.4 considered associated with pokilitical instablility and growning said tensions
Gini cooefficient ewuation
Area a (area beneath line of equality and lorenz curve for ocuntry)/area b (rest of half area-area a
Axis on lorenz curve
Cumulative % of income (y0
Housholds by income- wuintile distribution
Main causes of income inequality in uk
Widening gap atm
Decrease full time employemnt in manuufactring
Decreasing trade unin membership (and strnegth)
Bonus culture- prevalent in finacnial and business seervices
Sharp increase in exec pay relative to median incomes
Regressive effect of indirect taxes- poorest 5th pay 23% income vat
Welfare benefist less geneorugs over time
Unaffordable housing to buy and rent, cost of livibg
Wealth inequality contributed to income inequalityu
Causes wealth and income inequality between countries
Industrial revolution started in uk and spread to europe meant prosperity was higher
British colonial rule meant exploitation of countries and their resources,holding them back
Many countries held back by wars, droughts natural disasters
High debt levels for developing countries- further hampered their progress
Trade deal stended to favour mroe develiped countries further excerbating global inequality
Kuznets ineequality curve
Gini coefficient y, per capita gni/ppp on x
Cruve peaks in between industrialisation and development of progresisve tax system and welfare state
Suggests inequality often increase during phase of rapid industrilaizsationa nd urbanisation- may come to a point where increasing welfare porvidison, progressive taxes, more balanced income grow across industries may lead to devrease in overall inequality
Piketty theory on inequality
As a country develops, return on capital will increase to those owning resources,c asuing further ineqaulity
Euqality
Equal distribution of wealth and income in society
Everyone same income
Equity
Fairness
Acceptable distrbtion of income and wealth in society
Could db esubjective
Horizontal equity
Treating peoole the same
Tax should be fair- equal treatmebt
People in same income group pay same level s of tax
Verticle equity
Redistributioo of income through progressive tax
Benefits of more equal distribution
Avoid social unrest, health issue-s mental association with ineaulity
Allows people to participate in sociiety enabling them to afford gands avoiding market failre
Monoply can exploit consumer with higher prices, thus regressive
Inheritance can lead to inequality of opportunity- result in further inequaltuty
Benefit of more unequal distribution
Inequality motivates workers- learn new skills and work hard- higher wage relfetcs higher productivity in capitalist system
More productive econ leads to econ growth- generally higher living standards for all
Income redistribution and wage equity through gov initervention- inheritence tax means rich fmialies cannot keep entire wealth, state education eerone can access, reguklation for firms with monopoly power
Absolute poverty
When a household does not have sufficient income to sustain even a basic acceptable standard of living to meet basic needs
Thresholds vary between devloping countries
Extreme poverty measure
World bank % pop living on lesthan 1.90 dollars/day x ppp (purchaisng power parity
Relative poverty
Level of household income that is considerably llower than the real median level of income within a country
Official uk relative poverty line- houshold disposable income less than 60% median income- 22% in 2023
Official poverty line
Income level considered minimally sufficient to sustain a family in terms of food housing clothing medical needs
Poverty trap
Occurs when tax and benefits system creates disincentive to work
Main causes of absolute poeverty
Pop growing faster than gdp in low income ocuntries
Severe savings ga-p- unable to save
Absense basic gov public services
Effects of endemic corruption in gob and business
High levels of debt and high interest rate
Damaging effects civil wars and natural disaster
Lower employment rates bulnerable jobs and poveryty wages
Absence of basic property rights
Consequences of extreme ppoverty for development
Low life expectancy and fewer years of healthy life expectancy
Low school enrolment rate as families cannot afford education- gender opp gap
Low access basic helath care
Vulnerable loan sharks (high interest rates) for families mires in debt
Limited access to technology
Threats to democracy
Low real spending powwer limiting size of domestic markets for consumer gs
