Equity in the distribution of income
2 common mixed terms
In different countries, income is distributed unequally. Most of the income are processed by the top 20 quintiles, which forms a serious problem for the economy.
Indicators of income equality / inequality
-
Lorenz curve shows the degree of income inequality in an economy
-
The diagonal represents the condition of being totally equal in the distribution of income
Gini Coefficient
-
The closer to one the gini coefficient is, the greater the inequality in the country
-
Formula = Area between the diagonal and the lorenz curve / entire area under diagonal ( A / (A+B) )
Poverty
-
Inability to satisfy minimal consumption needs
2 types of poverty
Cause & Consequence of poverty
Cause
Consequence of poverty
-
Low living standards
-
Lack of access to health care and education
-
Higher death rate (especially infant, child mortality)
-
Higher level of preventable disease
-
More severe social problems
-
Inability to realise one’s potential
-
Economic degradation
Methods that can be used to promote equity in the redistribution of income
Taxation
-
Tax has a very important role in the redistribution of income, promote equity because tax revenues are used for transfer payment / provision on merit goods
Direct Taxes
-
Taxes paid directly to the government by the taxpayer
3 types of taxation
Indirect Tax = Regressive tax ?
-
This is because for a rich person and a poor person to buy the same product, although both of them will be paid the same amount of price, the payment for the product will be accounting for relatively more of the income for the poor people than the rich people. This can cause a decrease in the equity of the distribution of income
Calculations of TAX (HL)
