7- The distribution of income and wealth: poverty and inequality

Absolute poverty

When a person doesn't have enough income to fulfil basic needs

Distribution of income and wealth

The way in which income and wealth are divided among the population of the economy.

Earnings trap

Situation where the more an individual earns, the less they are entitled to, making it hard to escape poverty.

Equity

Fairness, justice. Involves value judgements.

Fiscal drag

As wages rise, a higher proportion of income is paid in tax.

Gini coefficient

Measures income or wealth inequality; maximum inequality is 1.

Horizontal equity

People in identical circumstances are treated equally.

Hysteresis

Effects that persist even after initial causes giving rise to the effects are removed.

Inequity

Unfairness, unjustness. Involves value judgements.

Kuznets hypothesis

Theory that as an economy grows, inequality is intially increased, then decreased.

Lorenz curve

Can be used to illustrate and measure distributive inequalities.

Means tested benefits

Entitlement to certain benefits depends on whether the income or wealth of an individual is below a certain level.

Poverty trap

When a rise in income leads to a decrease in eligibility for benefits, forcing individuals deeper into poverty.

Vertical equity

People in different circumstances are treated unequally yet fairly.