chapter 11: poverty and economic inequality

Earned Income Tax Credit (EITC)

A method of assisting the working poor through the tax system.

Effective Income Tax

The percentage of total taxes paid divided by total income.

Estate Tax

A tax imposed on the value of an inheritance.

Income

A flow of money received, often measured on a monthly or an annual basis.

Income Inequality

When one group receives a disproportionate share of total income or wealth compared to others.

Lorenz Curve

A graph that compares the cumulative income actually received to a perfectly equal distribution of income; it shows the share of the population on the horizontal axis and the cumulative percentage of total income received on the vertical axis.

Medicaid

A federal–state joint program enacted in 1965 that provides medical insurance for certain low-income individuals, including those near or below the poverty line, focusing on low-income families with children, the low-income elderly, and people with disabilities.

Poverty

The situation of being below a certain level of income necessary for a basic standard of living.

Poverty Line

The specific amount of income one requires for a basic standard of living.

Poverty Rate

The percentage of the population living below the poverty line.

Poverty Trap

A situation where antipoverty programs are set up so that government benefits decline substantially as people earn more income—as a result, working provides little financial gain.

Progressive Tax System

A tax system in which the rich pay a higher percentage of their income in taxes, rather than just a higher absolute amount.

Quintile

Dividing a group into fifths, a method economists often use to analyze the distribution of income.

Redistribution

Taking income from those with higher incomes and providing income to those with lower incomes.

Safety Net

The group of government programs that provide assistance to people at or near the poverty line.

Supplemental Nutrition Assistance Program (SNAP)

A federally funded program, started in 1964, in which each month poor people receive SNAP cards they can use to buy food.

Wealth

The sum of the value of all assets, including money in bank accounts, financial investments, a pension fund, and the value of a home.

poverty threshold

annual income below which a family is officially considered poor

mean household income

the average income across all households

median household income

is the income of the household lying at the exact middle of the income distribution

gini coefficient

is a number that summarizes a country’s level of income inequality based on how unequally income is distributed across quintiles.

means tested program

program available only to individuals or families whose incomes fall below a certain level

in-kind benefit

benefit given in the form of good or services

negative income tax

program that supplements the income of low-income working families.