Top 1%

Question 1

What four factors explain why the rice and the fall in income inequality has happened in some countries but not in others?

Answer 1

1. taxes
2. labour/earned income
3. capital income and inheritances
4. Join distribution of earned and capital income

Question 2

What does the great Gatsby curve show?

Answer 2

Shows the positive relationship between income inequality and generational earnings elasticity

Question 3

The great gatsby relationship at different declies (2)

Answer 3

• if born to a farther in the top decile then there is a 25% probability that son will be there too
• if born to a farther in the bottom declie, then there is a 20% probability that the son will be there too

Question 4

What explains the GGC? (3)

Answer 4

1. Human Captial investment
2. Labour Markets
3. Genetic Endowments

Question 5

What are the implications for public policy due to the GGC explanations? (3)

Answer 5

1. Education (not just focused on tertiary education)
2. Universal health coverage
3. Flexibility with work-family balance

Question 6

What are mankiw’s arguments in defence of the top 1%?

Answer 6

1. Just deserts
2. inequality is not always inefficient
3. Equality of opportunity is not always desirable

Question 7

Describe stage one of the KC (3)

Answer 7

1. Economy is at subsistence level
   - Not much difference in productivity between jobs/sectors
2. More income is spent, not saved
   - No accumulation of income
3. Not my dynamism in the economy
   - less individual opportunity to make money

Question 8

Describe stage two of the KC (3). What does this need?

Answer 8

1. Introduction of industries and new technologies
   - Creates inter-sector differences in productivity
2. Technological progress is biased towards skilled labour
   - Drives wage inequalities
3. Some people can afford to save more
   - Afford income yielding assets

• This needs a catalyst. For the UK and Germany this was the industrial revolution.

Question 9

Describe stage three of the KC (3)

Answer 9

1. More dynamism in the economy
   - More mobility (Develop financial markets, etc)
2. Technological improvements mean less inter-sector differences
3. Savings of lower group increase and they can afford to buy income yielding assets or invest in human capital.