Inequality Flashcards
What is absolute poverty?
- condition characterised by severe deprivation of basic human needs
- not only on income but also on access to services
What is the economic definition of absolute poverty?
- earning less than $2.15 per day at PPP exchange rates
What is relative poverty?
- when someone’s experiences a living standard which is below the minimum acceptable standard within the society in which that person lives
- (UK = disposable income is less than 60% of median income in the country)
Is it possible to be in absolute poverty but not relative poverty?
Yes
What is the gini coefficient?
- measures inequality on a scale from 0-1
- area between perfect equality and Lorenz curve
A/A+B
What is the Lorenz curve?
- graphical representation of the distribution of income
- cum % of population against cum %of countries wealth
What is the palma ratio?
- income share of the top 10%/ income share of bottom 40%
- focuses more narrowly on distribution between bottom end and top end
- government policy in redistributing income mostly focuses on these groups
What is ideal palma ratio?
- equal or smaller than 1
What is the range in gini index?
- (0-1)
- (0.25-0.75)
What is Pareto efficient?
- you can’t make someone in society better off without making someone else worse off
What is wealth?
- the value of the assets owned by a household
What are earnings
- income from labour
What is market income?
- all income received as earnings
- all income received from business owned by the household or from investments
What is disposable income?
The income that a family can spend:
- after paying taxes
- after receiving any monetary transfers from the government such as unemployment benefit and pensions
List earnings, disposable income, and wealth from least unequally distributed to most
- disposable income
- earnings
- wealth
Inequality between countries accounts for …..% of global inequality
90
What is original income?
- income before taxes & benefits
What is gross income?
- income after cash benefits
What is disposable income?
- income after cash benefits & direct taxes
What is post tax income
- income after cash benefits, direct & indirect taxes
What is final income?
- income after cash benefits & benefits in kind (NHS & state education)
What is the lottery of birth?
- determines initial endowments in life which then create differences in the ability to earn an income
List the 3 differences in human capital that can cause inequality.
- childhood nutrition which has a lifelong impact on health outcomes
- educational stimuli’s which has a lifelong impact on education incomes
- gender ethnicity race religion can all influence access to high paying labour markets
List three ways differences in social capital can cause inequality
- influence aspiration & motivation to enter high paying labour markets
- can influence access to high paying labour markets
- can influence policy makers decisions that tilt the playing field in favour of one group
How can differences in financial capital affect inequality?
- can provide additional income
- can finance investment in developing ones earning potential
- can provide a safety net that ncourages risk taking opportunities with large pay off as well as the opportunity to recover from misfortune
What are some policies to reduce differences in human capital?
- free health services
- compulsory & free (at the point of use) primary/secondary education
- student loans for tertiary education
What are policies to reduce differences in social capital?
- mentoring programs & bursaries to promote greater social mobility
- quotas for stakeholders that have been excluded from key leadership/ governance positions
How do you reduce differences in financial capital?
- inheritance tax
- progressive stamp duty on asset purchases
- progressive capital gains tax on asset sales
Policies to reduce asymmetric bargaining power in labour markets
- NMW
- mandating transparency in earnings of high paid employees
- guidance on the differential between highest and lowest paid employees in firms
What are basic policies to reduce inequality?
- progressive tax + tax benefits
- cash benefits (free education at point of access)
- national minimum wage
- max wage
- wage transparency
