income inequality and redistribution

why is the income inequality in South Africa so extreme?

• impact of the old apartheid system

• exploitation by large mining companies

• high unemployment rate and high crime rates

• high level of corruption (G isn’t trusted and G money isn’t well spent)

the three factos of production

capital, labour and nature

income

the remuneration made available to the owners of the factors of production

capital

rent, interest, dividendcap

labour

wage/salary

nature

rent

wealth

the sum of possessions of a person (or company)

net wealth

the difference between assets and liabilities

two ways to declare taxes

declaration on paper

digital declaration (tax on web)

four types of income

income from property

income from movable goods

professional income

miscellaneous income

categorical income distribution

the share of the various factors of production in the national income

labour income quote

proportion of labour income in national income

labour income has declined in recent decades

• production is becoming increasingly capital-intensive

• a decline in employment

• rejection of labour

• an increase in structural unemployment

who earns what?

• the richest predominantly get their income from rent and capital

• low and middle income lean more toward wages/salary

personal income distribution

indicates how a country’s income is distributed among its population

income inequality

incomes aren’t distributed equally among the population

why can we assume income inequality is even greater?

• people with no income or an income that’s too low are tax exempt

• capital income doesn’t need to be declared if there’s already witholding tax been deducted

• tax avoidance and/or tax evasion distort it

tax avoidance

intention is to pay as little tax as possible without breaking the law

tax evasion

involves fraud and breaking the law

the Lorenz curve

shows a country’s income inequality

the GINI coefficient

reflects a country’s income inequality

GC = 

surface A/ surface A+B

GC=0

incomes are distributed equally

GC close to 0

relatively low income inequality

GC close to 1

relatively high income inequality

GC=1

total income inequality

why do some countries have high income inequality?

• country’s history plays a big role

• government policy regarding reducing income inequality (education, fair tax system, social security system)

• informal labour market = no/low regulation

countries with high income inequality…

have no or poorly functioning instruments for redistributing wealth (taxation, social security, education)

pareto curve

shows a “skewed” or unequal income distribution

pareto curve, left side

lowest incomes, which represent majority of tax declarations

pareto curve, right side

highest incomes, which represent minority of tax declarations

five factors of income inequality

1. wealth factors

2. social factors

3. personal characteristics

4. labour market factors

5. random factors

WEALTH INEQUALITY (article national bank)

top incomes more often consisting of lower-taxed capital income