Chapter 9 - The distribution of income and wealth

Chapter 9 - The distribution of income and wealth

1. Wealth - a stock of valuable assets, e.g. houses

   • Sources
     • inheritance
     • chance
     • entrepreneurship
     • saving
   • Causes of inequality
     • inheritance
     • marriage
     • income inequality
     • chance
   • Types of distribution
     • Age
     • Types of assets

2. income

   • distribution of income
     • measure
       • lorenz curve
       • gini coefficient - current UK = 0.38
     • types
       • geographical
       • percentile groups
   • sources
     • wage
     • savings
     • interest
     • rent

3. Government intervention to reduce wealth and income inequality

   • tax
     • proportional
     • regressive(poll)
     • progressive(income tax)
   • monetary benefits
   • direct provision of goods
   • legislation and labour market policy
   • subsidies

4. Inequality vs Equality(spirit level book)

   • diminishing marginal utility - loss of rich compensated for by gain by poor.
     • poor have higher marginal propensity to spend = greater AD
   • INEQUALITY: trickle down
     • EQUALITY:might not reach poor
   • INEQUALITY: equity, those in poverty dont work hard enough
     • EQUALITY: some have less opportunities in the first place

5. poverty

   • types
     • Relative - This is when a person cannot provide for his/her basic needs such as food and shelter.
     • Absolute - when a household earns less 60% of average earnings.
   • causes
     • different wage groups experience disproportionate growth, so some people who wouldnt be classed as poor are now relatively poor
       • large wage differentials
       • 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.
     • falling state benefits- fall below poverty line OR average earnings
     • unemployment, lack of/low paid jobs, unskilled labour force D/S factors
     • changes in taxes - lower top rate of tax, more indirect taxes, = relative poverty
     • inequitable distribution of resources
     • poor health/disability
     • old age
     • expensive childcare
     • info-people dont know about benefits
   • policies to reduce poverty
     • create economic growth
     • job creation
     • raise personal allowance
     • raise minimum wage/introduce living wage
     • reduce standard rate of tax
     • more resources into adult education
     • more council houses
     • cut fuel bills
     • increase state pension/ raise awareness of better pensions (cheaper and less risk of gov fail)
     • raise government benefits
     • higher working tax credits
     • direct provision
     • Evaluation
       • more costly
       • downwards redistribution not fair on poor
       • risk of gov failure
       • information needs to be more accessible
       • some are not sustainable in long run
       • law of marginal utility - redistribution to poor compensates society
   • vicious cycle- because of poverty children cannot get out of pvoerty so they remain in poverty
   • poverty trap - cannot get out of poverty
     • Marginal rate of tax very high
     • Those who lived in poverty for a long time develop a culture
     • just want to live off benefits
     • do not possess skils for employment - low human capital
   • effects
     • worse mental and social health
     • lower life expectancy
     • waste of potential
     • social issues