Redistribution

Question 1

why is redistribution important and what is it about?

Answer 1

it is about income redistribution. it’s important because income has the potential to change someone’s life since many factors depends on it

Question 2

how can we compare household incomes?

Answer 2

1. current disposable monetary household income =
   primary income (income earned on the market)
   + income compensations (maternity / sick leave)
   + social transfers (based on poverty)
   + private transfers (from other households)
   - direct taxes (PIT)
   - SSC
2. equivalise it (so # of members is not a variable anymore):
   household equivalent income HEI = CDMHI / (sum of ponders)

ponders found in Modified OECD equivalence scale:
first elderly member / adult = 1
every additional adult member = 0.5
every child (<14) = 0.3

Question 3

explain what Lorenz curve tells us and how it can help with comparison of household incomes.

Answer 3

Lorenz curve is a graphical representation of distribution of income and wealth amongst the households.
comparing Lorenz curves of two different societies, we can see which one is more equal = has a more equal distribution of income
-> the one that is closer to the Line of Equality (45°) is more equal

Question 4

what does the Gini coefficient tell us? define its formula.

Answer 4

Gini = (area btwn Lorenz and Line of Equality) / (area under Line of Equality)
it defines the distribution of income:
0 = perfect equality
1 = perfect inequality
-> higher the Gini, higher the inequality.

Question 5

how can we be sure that the distribution of one society is more equal than another?

Answer 5

lorenz dominance has to hold = one curve has to be fully ‘above’ the other (they do not intersect) = La(p) ≥ Lb(p), for every p ∈ [0,1] and La ≠ Lb
if it doesn’t hold, we should use other indexes of income inequality (didn’t cover them tho)

Question 6

define the robin hood index, state an alternative name and where it can be seen in a graph.

Answer 6

also called the hoover index.
it tells us the portion of the total income that would have to be redistributed for the society to live in perfect equality. the higher it is, the higher the income inequality is.
in the graph, it’s the vertical distance between the Lorenz curve and the Line of equality

Question 7

explain what the income quintile share ratio is and state it

Answer 7

it is a measure of inequality.
= (total income of 20% of population with the highest income) / (total income of 20% of population with the lowest income) = highest quintile / lowest quintile
also called S80/S20 rule.

Question 8

define social exclusion.

Answer 8

= a state in which individuals are not able to fully paricipate in society (as well as the the process of leading up to that state)

Question 9

state three indicators of social exclusion in EU

Answer 9

1. indicator of poverty rate: poor individuals/households are those, whose income prevents them to participate in society.
   - —at-risk-of-poverty rate = share of people (with an equivalised disposable income) that are below the threshold:
   - ———–1. define median of population
   - ———–2. with the help of Chart, that gives you median of disposable income
   - ———–3. threshold = median of disp. income * 60%
2. indicator of material deprivation: % of ppl that can’t afford min 3/9: one week’s holiday, phone, colour TV, meal with meat every 2nd day, washing machine, car, heating
3. indicator of work-rich household (how many members are paid to work)