The Distribution Of Wealth- Income And Inequality Flashcards
Income
Flow of money going to factors of production
Wages and saleries paid to people in work
Money paid to people recieving benefits - sate pension, tax credits
Profits flowing to businesses and corperations
Dividends distributed to. Shareholders
Retal income to theose who own and lease property
Interest paid to owners of capital who hold money in deposit accounts or who hold bonds
Wealth
Stock concept
Can be held differently
Likely to be more unequal as those with wealth can use it to buy further assets and make investments
Ways in which wealth can be held
Savings in commercial bank deposits
Ownership of shares issued by sticj market listed companies and equity stakes in private buisnesses
Ownership of property
Wealth held in corperate bonds and gov bonds
Wealth tied in private pension schoemes- life assurance schemes
Lorenz curve
Visual interpretation of income/wealth of inequality
Closer to line of euqality (directlty through middle) more waul
Gini coefficient
Condenses the entire income distribution for a country into a signle numebr 0-1
Higher the number, greater the degree of income inequality
Above 0.4 considered associated with pokilitical instablility and growning said tensions
Gini cooefficient ewuation
Area a (area beneath line of equality and lorenz curve for ocuntry)/area b (rest of half area-area a
Axis on lorenz curve
Cumulative % of income (y0
Housholds by income- wuintile distribution
Main causes of income inequality in uk
Widening gap atm
Decrease full time employemnt in manuufactring
Decreasing trade unin membership (and strnegth)
Bonus culture- prevalent in finacnial and business seervices
Sharp increase in exec pay relative to median incomes
Regressive effect of indirect taxes- poorest 5th pay 23% income vat
Welfare benefist less geneorugs over time
Unaffordable housing to buy and rent, cost of livibg
Wealth inequality contributed to income inequalityu
Causes wealth and income inequality between countries
Industrial revolution started in uk and spread to europe meant prosperity was higher
British colonial rule meant exploitation of countries and their resources,holding them back
Many countries held back by wars, droughts natural disasters
High debt levels for developing countries- further hampered their progress
Trade deal stended to favour mroe develiped countries further excerbating global inequality
Kuznets ineequality curve
Gini coefficient y, per capita gni/ppp on x
Cruve peaks in between industrialisation and development of progresisve tax system and welfare state
Suggests inequality often increase during phase of rapid industrilaizsationa nd urbanisation- may come to a point where increasing welfare porvidison, progressive taxes, more balanced income grow across industries may lead to devrease in overall inequality
Piketty theory on inequality
As a country develops, return on capital will increase to those owning resources,c asuing further ineqaulity
Euqality
Equal distribution of wealth and income in society
Everyone same income
Equity
Fairness
Acceptable distrbtion of income and wealth in society
Could db esubjective
Horizontal equity
Treating peoole the same
Tax should be fair- equal treatmebt
People in same income group pay same level s of tax
Verticle equity
Redistributioo of income through progressive tax
Benefits of more equal distribution
Avoid social unrest, health issue-s mental association with ineaulity
Allows people to participate in sociiety enabling them to afford gands avoiding market failre
Monoply can exploit consumer with higher prices, thus regressive
Inheritance can lead to inequality of opportunity- result in further inequaltuty
Benefit of more unequal distribution
Inequality motivates workers- learn new skills and work hard- higher wage relfetcs higher productivity in capitalist system
More productive econ leads to econ growth- generally higher living standards for all
Income redistribution and wage equity through gov initervention- inheritence tax means rich fmialies cannot keep entire wealth, state education eerone can access, reguklation for firms with monopoly power
Absolute poverty
When a household does not have sufficient income to sustain even a basic acceptable standard of living to meet basic needs
Thresholds vary between devloping countries
Extreme poverty measure
World bank % pop living on lesthan 1.90 dollars/day x ppp (purchaisng power parity
Relative poverty
Level of household income that is considerably llower than the real median level of income within a country
Official uk relative poverty line- houshold disposable income less than 60% median income- 22% in 2023
Official poverty line
Income level considered minimally sufficient to sustain a family in terms of food housing clothing medical needs
Poverty trap
Occurs when tax and benefits system creates disincentive to work
Main causes of absolute poeverty
Pop growing faster than gdp in low income ocuntries
Severe savings ga-p- unable to save
Absense basic gov public services
Effects of endemic corruption in gob and business
High levels of debt and high interest rate
Damaging effects civil wars and natural disaster
Lower employment rates bulnerable jobs and poveryty wages
Absence of basic property rights
Consequences of extreme ppoverty for development
Low life expectancy and fewer years of healthy life expectancy
Low school enrolment rate as families cannot afford education- gender opp gap
Low access basic helath care
Vulnerable loan sharks (high interest rates) for families mires in debt
Limited access to technology
Threats to democracy
Low real spending powwer limiting size of domestic markets for consumer gs
Causes relative poverty ul
Inequality in wage grown- austerity, low wage public sector, highest page jobs increased
Deindsurtailise- service sector poorly paid
Flexile labour market- undeemployed, part time
Decrease trade unions
Decrease state benefits, increased regressive tax
Consequences high relative poverty for grotwh
Cause self perpetualtion povety cycle- limited access to healthcare and education
Misallocation of scarce resources- capital investment skewed towards preference of nation, low collaterol (assets aginat loans) limits growth entrepreneurs
Social and political tensions- increased pressure on state welfare systems
Increased informal econ and high interest rate loans
Policies in developing countries
Gov might imporve human capital by making education more available
May try to diversify econ by stimulate econ gain and job creation - sri lanka develop tourism industry
Spending on housing public services healthcare education
heps to provide equal opp for all
Ensures those on low incomes basic needs met- min standard of living
Policies to decrease inequality
Increase marginal tax rates- progressive taxation
Increase statutory legal minimum wage
Icnrease relative level of welfare benefits
Increase employment rates
Subsisyd on energy bills, childcare
Rent controls to tackle unaffordable housing
Laws to tackle discrimination in labour amrket
Universal basic income- ubi0 everyone given basic income
Min wage
Legal pay floor that all employers must pay to eligable workers
To be effective min wage must be set above free market level
Supply of labour will expand- more people are attracted to work
For increase min wage
Imporve work incentive and icnrease labour productivity
Lifts people out of working poevrty which means reduce welfare spending- universla credit
Consumer spending increases as increased disposable income
Against increased min wage
Wage price inflationary spiral- cost push
Real wage unemp
Job losses in labour market- outsourcing and autonomous
Decrease price compettveness ofr export businesses
Rent controls
Keep rents lower
Below market price
For rent controls
Making rent affordable for lower income younger people - increasing mobility
Realeases people to live on -greater discretionary income
Against rent controls
Decrease supply of quantuty of rental housing- fall inconstruction of rental property
Unintended consequences dif in cost of implementation
For increasing top marginal rate income tax
Increase tax rev to support welafre state
Decrease post tax income ineqality which can increase ad
Social equity- those who can should pay
Against increasing top marginal rate income tax
Tax rev might fall- laffer curve trade for tax and rev- increase avoidance and evasion
Competiveness might make uk econ less attractive to high earners
Groeth incentives to top earner to work and invest falls
Causes and effects of poverty in uk
Old age- lack of private pension and rely on state one
Unemployment- relian on benefits
Low wages- structural unemployment from lack of manufacturing, fractured service sector
Effects of poverty in uk||
Education deprivation- age 3, 9 months behind, by 16 children on free school meals achieve 1.7 grades lower at gose
Health deprivation- children born in poorest areas of uk weigh on average 200 grams less at brith than those bron in richest areas, more likely chronic illness
Effect of poevrty on comunities- mising out on school trups holidays, increased crime
Gini coefficient uk
0.35 2021
V high for developed countries
Applications in inequality q
Evidence of mental health more issues in unequal countris
Failure of trickle down theory
