Inequality and Social Welfare Flashcards
Statistical measures of inequality
Ratios
Shares of Total Income
Average income by decile or quintile
Lorenze curve
Gini Coefficient
Ratios
S80/S20 is the ratio of the average income of the 20% richest to the 20% poorest; P80/P20 is the ratio of the upper bound value of the 8th decile to that of the 2nd decile
Shares of total income
held by the top x percent of the population; simple metric; commonly used for describing the top of the income distribution
average income by decile or quintile
simple metric; tells us about level of income
Lorenz curve
order cumulative number of people by income on the x-axis and cumulative share of income held on the y-axis
- percentage of total income held by x% of the population
Gini coefficient
A/A+B
higher gini represents a more unequal distribution
Global trends in inequality
persistent differences in inequality across countries
strong global growth in incomes
inverted u-shape over development?
wealth more unequally distributed than income
Measuring inequality: income
most common measure of inequality
role of taxes
does not tell us what people actually consumer
measuring inequality: consumption
consumption enters utility function
according to Permanent income hypothesis, consumption tells us about lifetime income
requires us to include:
- value of housing consumed by owner-occupiers
- in-kind transfers
measuring inequality: wealth
determined by past income, rate of return on saving
a measure of wellbeing, however, theoretically not as good a measure as consumption
affects economic mobility through bequest behaviour
role of housing wealth important for measuring inequality in Australia
equivalisation
adjusts household-level variables for differences in household composition
PC Report Key Findings: Inequality
inequality has increased modestly since the late 1980s
inequality in Australia is about average among OECD countries
the tax and transfer system substantially reduces income inequality
consumption inequality is lower than income inequality. in kind transfers substantially reduce consumption inequality
the role of the life-cycle is important for understanding income inequality
Inequality in Australia over time
HILDA: little change in equality since early 2000s
HES: modest increase in inequality since mid 2000s
similar trends for gini and quintile ratios
high and relatively uniform income growth across deciles underlies constancy of inequality measures
top 1% share has increased modestly since the late 1980s
inequality in australia compared with other countries
about average in oecd
large differences in inequality across developed countries suggests government policies and institutions and political systems strongly influence the level of inequality
inequality has risen in most countries since the late 1980s
top 1% share lower in Aus than US and UK
tax and transfer system and inequality
in 2015/16 pre-tax/transfer gini is 0.46 and the post-tax/transfer gini is 0.32
transfers reduce inequality more than income taxes
to work out marginal effects: re-calculate Gini coefficient excluding components of income
