Income Distribution Flashcards
Define::
Wealth
The current value of the assets a household has accumulated over time through savings ; financial investments business profits and inheritance
Autralian Bureau of Statistics (ABS) definition of wealth
The difference between a households
assets and its liabilities.
Define:
Household assets
Property, shares, savings and superannuation.
Define:
(Household) liabilities
Mortgages, personal loans and
credit card debt.
What is the Lorenz curve and what is it useful for?
Shows the percentage of income received by different sections of the population. Used to show the degree of income inequality in an economy. Plots the actual relationship between percentages of the population and the shares of income they receive.
Describe:
The line of equality (Lorenz curve)
- If everybody received the same income the Lorenz Curve would be a straight, diagonal line, running from the origin to the top right of the diagram.
- The more the curve dips away from the line of equality the more uneven is the distribution of income.
Define:
Gini coefficient
With formula
- A measure that indicates the degree of curvature or concavity of the line.
- Gini coefficient = area between Lorenz curve and line of equality ÷ entire area under line of equality.
- It is between 0 and 1. The closer the value is to 0, the greater the income equality; the closer the value is to 1, the greater the income inequality.
Gross income
Income, after an allowance for transfers.
Income tax
Tax on gross income
Disposable income
The income that remains after payment of direct
tax
Progressive taxation
People on higher incomes are taxed at a proportionately higher rate than people on low incomes.
Social wage
& its effect on purchasing power.
The government provides a number of things at no or low cost to households, for example, government schooling, healthcare through Medicare, use of most roads, libraries etc.
The value of these products can be considered to be a form of social wage and in effect raises the purchasing power of peoples’ disposable incomes.
Indirect taxes
& their effect on purchasing power.
- GST and excise duty.
- These taxes are levied when people spend money or undertake certain activities. These indirect taxes reduce the purchasing power of disposable incomes.
Define:
HDI
Human development index, a combined score is given based on equal weighting of:
- Health (life expectancy)
- Wealth (GDP per capita)
- Education (literacy and years of schooling)
HDI strengths
- Uses both social and economic data
- Information is updated annually and collected by a range of people
HDI weaknesses
- Some say the wealth aspect still has too much importance in the HDI
- Too simple: may need more indicators to get a broader view of both non-material and material SOL.
Define:
SPI
Social progress index.
Measures the extent to which countries provide for the social and environmental needs of the citizens
A combined score is given based on achievement within three dimensions (54 indicators):
- Basic needs for survival (food, water, shelter, safety)
- Foundations of Well-being: Building blocks to improve life (education, information, health and sustainable environment)
- Opportunity: Chance to pursue their goals and dreams and ambitions free from obstacles (rights, freedom of choice, freedom from discrimination and access to advanced knowledge — tertiary education)
SPI strengths
Broad range of indicators used.
SPI weaknesses
- Uses only social and environmental data (exclusion of economic data)
- Not all dimensions are incorporated e.g. measure of subjective life satisfaction
