Income Distribution

Income → Flow of funds

• Market/Private Income

  • money earned from wages/salaries or from the sale of household resources

  • earned income → income from work (salaries + wages)

  • unearned income → income from the ‘sale’ of household resources (rent, interest or dividends)

  • influenced by minimum wage (must be set above)

Therefore,

Minimum Wage → Earned Income

Assets → Unearned Income

Earned Income + Unearned Income → Market Income

Income Tax → payed on gross income

• australian income tax is progressive

• incidence falls on consumers and is paid by consumers

  • direct tax

• indirect tax → taxes paid on expenditure

  • incidence falls on producers, paid by consumers

  • GST or excise tax

• Social wages → negative tax (transfers)

  • provision of goods/services subsidised by government

  • raises disposable income (consumers spend less)

Transfers + Market Income + Direct Tax → Disposable Income

• Transfers → set government-paid income packages

  • pensions, benefits, etc

  • boosts disposable income

Social wage + Indirect Tax + Disposable Income → Final Income

Wealth → stock of assets

• current value of the assets a household has accumulated over time through savings

  • financial investments, business profits and inheritance

  • difference between a households assets and liabilities

• assets → property, shares, savings and superannuation

• liabilities → mortgages, personal loans and credit card debt

Assets + Liabilities → Wealth

Graphing Income Distribution

• Lorenz Curve

  • %population vs %income earned

  • cumulative measurements

  • ranked according to income, lowest to highest

  • greater difference, greater inequality

• Gini coefficient

  • area between diagonal and Lorenz curve/entire area under diagonal

  • Perfect Income equality = 0

  • Perfect Income inequality = 1

  • summary measure of income inequality

  • value ranges 0-1