econ final elzenga last one Flashcards
Lorenz Curve:
a geometric representation of income among families in a given country at a given time; diagonal if perfectly distributed; inequality represented by curve below the diagonal; most useful to compare country vs country;
Reasons Income inequality in the US decreased from 1929 to 1970:
Redistribution efforts such as welfare, unemployment insurance, social security, progressive taxation, and improved macroeconomy
Reason trend back towards inequality in the 70’s:
fall in real income of the poor (wages weren’t consistent with price increases), globalization, taxes are less progressive, gov’t funding for social programs has fallen, unskilled and medium-skilled worker wage squeeze due to immigrant influx
US definition of poverty:
a family is in poverty if its income is equal to or less than three times an average family’s minimum food expenditure as calculated by the USDA
Costs of poverty:
o Societal cost and distress
o Increases incentives for crime
Gini Coefficient:
On Lentz curve, area between the curve and the diagonal divided by the area of the triangle formed by the diagonal and the axis; perfect equality when zero; completely unequal if 1
Two measures used for wealth distribution:
o Equality of wealth (Wealth is significantly more unequally distributed than is income)
o Equality of income
Pentagonal
Class structure in the US today
Three problems in determining whether an equal income distribution is fair:
o People don’t start from equivalent positions
o People’s needs differ
o People’s efforts differ
Side effects of redistribution of income:
o Labor/leisure incentive effect (tax causes people to work less labor → leisure)
o Avoidance and evasion incentive effect (tax evasion)
o Incentive effect to look more needy than you are
Direct methods of income redistribution:
o Taxation (progressive taxation specifically)
o Expenditures (programs that help the poor)
Indirect method of income redistribution:
establishing and protecting property rights; Less value placed on property rights (EX: shorter patent terms) distributes income more “equally”
Largest sources of US gov’t income:
o Income tax
o Corporate tax
o Social security tax
Social Security:
a social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survivors; Medicare is a component
Public assistance programs (WELFARE):
means-tested social programs targeted to the poor, providing financial, nutritional, medical, and housing assistance
EX:
o Temporary Assistance for Needy Families (TANF)
o Supplemental Nutritional Assistance Program (SNAP)
o Medicaid: paid for by states, generally more generous than Medicare
o General Assistance
