1. Distribution of Income and Wealth

What is Income

Flow Concept which is measured over a given period of time

What is Wealth

Stock Concept which is measured at a given point in time

Assets with market value that can generate income

What does it mean by ‘income and wealth are mutually reinforcing’

High incomes allow you to buy assets which can generate more income which you can buy more assets etc.

If you have a high income, you are likely to be wealthy and if you are wealthy, you are likely to have a high income

Reasons for the differentials in income and wealth

Age - Higher wealth is accumulated over time due higher incomes from skills and experience

Education - The more educated/qualified you are, the more skills you will have so income increase which will lead to an increase in wealth

Ownership of Financial Assets e.g. pensions (partially relies on employer), stocks, shares, derivatives

Ownership of Property (housing)

Inheritance - Inheritance of wealth can generate large boosts in income

Wage Differentials - Can massively effect distribution of income (role of state benefits comes into play here)

What is Absolute Poverty

Incomes below a threshold ($2/day) to access the most basic, life sustaining goods and services

What is Relative Poverty

Incomes below a given average in society

Difference between Equity and Equality

Equity - Fair Distribution of Income

Equality - Equal Distribution of Income

What are the two types of equity and what do they mean

Horizontal Equity - Those with the same incomes are taxed the same

Vertical Equity - Higher income earners are taxed more (progressive and proportionate tax)

Causes of Poverty

Unemployment - Cyclical and Structural

Poor Education/Skills

Poor Health/Healthcare (lower productivity and restricted access to certain professions)

Wage Differentials (more linked to relative poverty)

Tax Cuts for the Well Off (45% for £150K+ which is lower than what it used to be)

Subsistence Agriculture (raising children to work on farms , occurs more in developing countries)

Government Policies to Redistribute Income and Wealth

Universal Benefits refers to benefits available to all regardless of the position they’re in (e.g. transport benefits)

Means tested benefits refers to benefits that are given to people who meet a certain criteria but are taken away when they exceed that criteria threshold

The term leave in the legislation section refers to maternity/paternity leave

Evaluation of Government Policies to Redistribute Income and Wealth

Incentives

State of Government Finances

Equity vs Efficiency

Normative Judgements

Government Failure

Size of the Inequality Gap