Chapter 5 Poverty, Inequality, and Development

Personal distribution of income

The distribution of income according to size class of persons—for example, the share of total income accruing to the poorest specific percentage or the richest specific percentage of a population— without regard to the sources of that income.

(size distribution of income)

Quintile

A 20% proportion of any numerical quantity. A population divided into —- would be divided into five groups of equal size.

Decile

A 10% portion of any numerical quantity; a population divided into —— would be divided into ten equal numerical groups.

Income inequality

The disproportionate distribution of total national income among households.

Lorenz Curve

A graph depicting the variance of the size distribution of income from perfect equality.

Gini coefficient

An aggregate numerical measure of income inequality ranging from 0 (perfect equality) to 1 (perfect inequality).

Gini coefficient

It is measured graphically by dividing the area between the perfect equality line and the Lorenz curve by the total area lying to the right of the equality line in a Lorenz diagram.

Gini coefficient

The higher the value of the coefficient is, the higher the inequality of income distribution; the lower it is, the more equal the distribution of income.

Functional distribution of income

(factor share distribution of income) The distribution of income to factors of production without regard to the ownership of the factors.

Factors of production

Resources or inputs required to produce a good or a service, such as land, labor, and capital.

Absolute Poverty

The situation of being unable or only barely able to meet the subsistence essentials of food, clothing, and shelter.

Headcount index

(also referred to as the “headcount ratio”) The proportion of a country’s population living below the poverty line.

Total poverty gap (TPG)

The sum of the difference between the poverty line and actual income levels of all people living below that line.

Foster-Greer-Thorbecke (FGT) index

A class of measures of the level of absolute poverty.

Kuznets curve

A graph reflecting the relationship between a country’s income per capita and its inequality of income distribution.

Character of economic growth

The distributive implications of economic growth as reflected in such factors as participation in the growth process and asset ownership.

Multidimensional Poverty Index (MPI)

A poverty measure that identifies the poor using dual cutoffs for levels and numbers of deprivations, and then multiplies the percentage of people living in poverty times the percent of weighted indicators for which poor households are deprived on average.

Disposable income

The income that is available to households for spending and saving after personal income taxes have been deducted.

Asset ownership

The ownership of land, physical capital (factories, buildings, machinery, etc.), human capital, and financial resources that generate income for owners.

Redistribution policies

Policies geared to reducing income inequality and expanding economic opportunities in order to promote development, including income tax policies, rural development policies, and publicly financed services.

Land reform

A deliberate attempt to reorganize and transform existing agrarian systems with the intention of improving the distribution of agricultural incomes and thus fostering rural development.

Progressive income tax

A tax whose rate increases with increasing personal incomes.

Regressive tax

A tax structure in which the ratio of taxes to income tends to decrease as income increases.

Indirect taxes

Taxes levied on goods ultimately purchased by consumers, including customs duties (tariffs), excise duties, sales taxes, and export duties.

Public consumption

All current expenditures for purchases of goods and services by all levels of government, including capital expenditures on national defense and security.

Subsidy

A payment by the government to producers or distributors in an industry to prevent the decline of that industry, to reduce the prices of its products, or to encourage hiring.

Neoclassical price incentive model

A model whose main proposition is that if market prices are to in- fluence economic activities in the right direction, they must be adjusted to remove factor price distortions by means of subsidies, taxes, or the like so that factor prices may reflect the true opportunity cost of the resources being used.

Workfare program

A poverty alleviation program that requires program beneficiaries to work in exchange for benefits, as in a food-for-work program.

Factor price distortions

Situations in which factors of production are paid prices that do not reflect their true scarcity values (i.e., their competitive market prices) because of institutional arrangements that tamper with the free working of market forces of supply and demand.

Elasticity of factor substitution

A measure of the degree of substitutability between factors of production in any given production process when relative factor η prices change.