Income Distribution

… a core concept in Economic Analysis and Atlas102

LorenzAndGiniConcept description

Wikipedia (reference below) defines income distribution as how a nation’s gross domestic product is distributed among its population.

The distribution of income in most countries is highly unequal and relationship between markets and inequality is much discussed.

The Economist (reference below) writes, in its A-Z entry on inequality:

“Does economic growth create more or less equality? Do unequal societies grow more or less slowly than equal ones? Economists have debated these questions for as long as anyone can remember. One problem is to agree which sort of inequality matters: equality of outcome (that is, income) or of opportunity? Another is how then to measure it. Equality of opportunity, which, in theory, should make a difference to growth, because it is about giving people the chance to make the most of their human capital, is probably beyond the ability of statisticians to analyse rigorously. The most often used measure of income inequality is the Gini coefficient.

“The evidence suggests that extreme poverty is more likely to slow growth than income inequality itself. This is because very poor people cannot buy the education they need to enable them to become richer and their children may be forced to forgo schooling in order to work for money.

“Economic growth has generally reduced inequality within a country. This has been partly as a result of redistributive tax and benefits systems, which have become so significant that they may now be causing slower growth in some countries. The availability of welfare benefits may have discouraged unemployed people from seeking out a better job; and the high taxes needed to pay for the benefits may have discouraged some wealthy people from working as hard as they would have done under a friendlier tax regime. However, the new economy may see inequality in rich countries widen again, thanks to its alleged winner-takes-all distribution of financial rewards.”

In The Concise Encyclopedia of Economics, Frank Levy (reference below) wrote:

“The distribution of income lies at the heart of an enduring issue in political economy – the extent to which government should redistribute income from those with more income to those with less.

“Whether government should redistribute income is a normative question, and each person’s answer will depend on his or her values. But for many people, answering the normative question requires understanding the facts about the current income distribution. The term “income distribution” is a statistical concept. No one person is distributing income. Rather, the income distribution arises from people’s decisions about work, saving, and investment as they interact through markets and are affected by the tax system.”

Sources

Wikipedia, Income distribution, at https://en.wikipedia.org/wiki/Income_distribution, accessed 11 May 2016.

The Economist, Inequality, Economics A-Z, at http://www.economist.com/economics-a-to-z/i#node-21529798, accessed 11 May 2016.

Frank Levy, The Concise Encyclopedia of Economics, at http://www.econlib.org/library/Enc/DistributionofIncome.html, accessed 11 May 2016.

Atlas topic and subject

Labour Markets, Transfers, and Personal Taxes (core topic) in Economic Analysis and Atlas102.

Page created by: Ian Clark, last modified on 11 May 2016.

Image: Kadycamp12, SlideShare at http://www.slideshare.net/Kadycamp12/ippt-chap021, accessed 11 May 2016.