Chapter 14: Addressing income and wealth inequality

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11 Terms

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Wealth

The stock of assets that has been built up over time

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Income

  • Income is a flow concept.

  • Income is the reward for the services of a factor of production.

  • For labour, income is paid in wages,salaries and bonuses. For other factors income takes the form of rent for land, interest on capital and profits for enterprise.

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Gini Coefficient

  • A numerical measure of income inequality

  • Values exist between 0 and 1. 0 being there is no income inequality and 1 being all the wealth is concentrated in the hands of one person.

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Reasons for income and wealth inequality

  • Lack of formal employment opportunities

  • Poor vocational training, which means that local industries cannot obtain labour needed to maintain a viable oprations in markets

  • Lack of investment in the education and health sectors

  • Poor infrastructure such as roads, railways, power and water supply

  • Low rate of savings, which holds back private ad public sector investment

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Policies to redistribute income and wealth

  • Minimum Wage Rates: can reduce poverty in all economies. However it fails to provide so for the majority of the workers in middle income countries since the bulk of their employment is in the informal economy.

  • Transfer Payments A form of payment to vulnerable groups such as the elderly, the disabled and the unemployed and those on the lowest income. Examples include: Old age pensions, housing allowances, food coupons etc

  • Progressive income taxes, inheritance and capital taxes:

  • State provision if essential goods and services

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Informal economy:

The part of the economy that is not regulated, protected or taxed by the government

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Minimum Wage:

The least amount and employer can legally pay one of its workers.

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Transfer Payments

A payment made my the government to certain members of the community who may be unable to work or are in need of assistance

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Progressive Tax

One Where the rate of taxation rises more proportionally to the rise in income

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Inheritance Tax:

A progressive tax on an inheritance or gift

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Capital tax

A progressive tax paid annually on the difference between the buying and selling price of an asset.