Chapter 9 - The distribution of income and wealth

Wealth - a stock of valuable assets, e.g. houses
1. Sources
  1. inheritance
  2. chance
  3. entrepreneurship
  4. saving
2. Causes of inequality
  1. inheritance
  2. marriage
  3. income inequality
  4. chance
3. Types of distribution
  1. Age
  2. Types of assets
income
1. distribution of income
  1. measure
    1. lorenz curve
    2. gini coefficient - current UK = 0.38
  2. types
    1. geographical
    2. percentile groups
2. sources
  1. wage
  2. savings
  3. interest
  4. rent
Government intervention to reduce wealth and income inequality
1. tax
  1. proportional
  2. regressive(poll)
  3. progressive(income tax)
2. monetary benefits
3. direct provision of goods
4. legislation and labour market policy
5. subsidies
Inequality vs Equality(spirit level book)
1. diminishing marginal utility - loss of rich compensated for by gain by poor.
  1. poor have higher marginal propensity to spend = greater AD
2. INEQUALITY: trickle down
  1. EQUALITY:might not reach poor
3. INEQUALITY: equity, those in poverty dont work hard enough
  1. EQUALITY: some have less opportunities in the first place
poverty
1. types
  1. Relative - This is when a person cannot provide for his/her basic needs such as food and shelter.
  2. Absolute - when a household earns less 60% of average earnings.
2. causes
  1. different wage groups experience disproportionate growth, so some people who wouldnt be classed as poor are now relatively poor
    1. large wage differentials
    2. according to the BBC: between 1997 and 2007 the top 1% had an income growth of 42% whereas the 90% had a 20% increase in the same period.
  2. falling state benefits- fall below poverty line OR average earnings
  3. unemployment, lack of/low paid jobs, unskilled labour force D/S factors
  4. changes in taxes - lower top rate of tax, more indirect taxes, = relative poverty
  5. inequitable distribution of resources
  6. poor health/disability
  7. old age
  8. expensive childcare
  9. info-people dont know about benefits
3. policies to reduce poverty
  1. create economic growth
  2. job creation
  3. raise personal allowance
  4. raise minimum wage/introduce living wage
  5. reduce standard rate of tax
  6. more resources into adult education
  7. more council houses
  8. cut fuel bills
  9. increase state pension/ raise awareness of better pensions (cheaper and less risk of gov fail)
  10. raise government benefits
  11. higher working tax credits
  12. direct provision
  13. Evaluation
    1. more costly
    2. downwards redistribution not fair on poor
    3. risk of gov failure
    4. information needs to be more accessible
    5. some are not sustainable in long run
    6. law of marginal utility - redistribution to poor compensates society
4. vicious cycle- because of poverty children cannot get out of pvoerty so they remain in poverty
5. poverty trap - cannot get out of poverty
  1. Marginal rate of tax very high
  2. Those who lived in poverty for a long time develop a culture
  3. just want to live off benefits
  4. do not possess skils for employment - low human capital
6. effects
  1. worse mental and social health
  2. lower life expectancy
  3. waste of potential
  4. social issues

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Chapter 9 - The distribution of income and wealth

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