Equity+in+the+distribution+of+income

Equity in the distribution of Income


 * Key learning outcomes: **


 * **Explain that due to unequal ownership of factors of production, the market system may not result in an equitable distribution of income. **


 * **Analyse data on relative income shares of given percentages of the population, including deciles and quintiles. **


 * **Draw a Lorenz curve and explain its significance. **

An example of a lorenz curve: A country has the following income distribution (all figures in $):

Bill 1500; Zak 2000;Robert 8000; Jose 9000; Erika 10000; Kai 12000; Juan 15000; Harry 16000; Kathleen 20000; Emily 30000;
 * Calculate the total income in the country
 * Calculate each person's % of total income
 * Calculate the cumulative % of each decile, starting from the poorest 10% to the richest.
 * Map this on a graph.

You have created a lorenz curve!

Another example: P303 Tragakes

 The 45 degree line (Green line) shows perfect equality so the further a country's lorenz curve is from this the less equality there is.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 18px;">And a nice revision video if you need it:

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<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">The Gini coefficient is the numerical representation of the lorenz curve. For example in the diagram above there is an area below the green line but above the lorenz curve. Let's call this area A. There is also an area below the lorenz curve let's call this Area B. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Gini Coefficient= A/A+B
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">• Explain how the Gini coefficient is derived and interpreted. **

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">If a country had perfect equality there would be no area A and so the Gini coefficient would be 0 <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">If there was perfect inequality then there would be no area B and so the Gini coefficient would be 1. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">We can summarise this by saying that the lower the value the greater the equality. Anything over 0.5 would be relatively unequal. Often the Gini value is also expressed as a value between 0-100. Now look up the data on the link below.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Gini Data]

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|Also updated data on China 2011]

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Poverty <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">• Distinguish between absolute poverty and relative poverty. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">• Explain possible causes of poverty, including low incomes, unemployment and lack of human capital. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">• Explain possible consequences of poverty, including low living standards, and lack of access to health care and education. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">The role of taxation in promoting equity

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">• Distinguish between direct and indirect taxes, providing examples of each, and explain that direct taxes may be used as a mechanism to redistribute income. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">• Distinguish between progressive, regressive and proportional taxation, providing examples of each.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Activity:now open the document below and match the explanations to the words.
<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px; line-height: 0px; overflow: hidden;">

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">• Calculate the marginal rate of tax and the average rate of tax from the data below.


 * ~  ||~ <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Annual Taxable Income ||~ <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Tax Rate (%) ||~ <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">in Indonesia ||

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">How much tax would the following pay and what would their annual and marginal tax rates be? <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">a) a person earning 100 million IDR per year b) a person earning 600 million IDR per year
 * **Individual Income Tax** || **Tax Rate** ||
 * **•** Up to IDR 50 million || 5% ||
 * **•** Over IDR 50 million to IDR 250 million || 15% ||
 * **•** Over IDR 250 million to IDR 500 million || 25% ||
 * **•** Over IDR 500 million || 30% ||

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">HL Taxation question: <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[]

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">The diagram below is known as the laffer curve. What does it tell us about the disincentive effect of high income tax rates

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Summative Assesment Task

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Essay: <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Explain the relationship between the Lorenze Curve and the Gini Coefficient (10) <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Evaluate the effectiveness of the various methods that governments may use to redistribute income (15)

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">media type="custom" key="26091872"

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= = <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;"> Watch the video above. What are the possible problems for China of this growing inequality between rural and urban China?

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">For extension activity if you feel confident with this topic -watch this excellent Ted Talk and answer the questions below:

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">How economic inequality harms societies

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">media type="custom" key="12352988" width="230" height="230" align="left"

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">1.) What is the correlation between the following measures?:
 * 1) <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">a. life expectancy and gross national income
 * 2) <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">b. life expectancy and income inequality
 * 3) <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">c. health & social problems and gross national income
 * 4) <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">d. health & social problems and income inequality
 * 5) <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">e. UNICEF index of child wellbeing and gross national income
 * 6) <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">f. UNICEF index of child wellbeing and gross national income

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">2.) What does the information above tell you about the importance of income inequality in a country?

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">3.) What other data does Richard Wilkinson use to back up his argument?

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">4.) How does Sweden attempt to narrow the gap between the rich & poor in society?

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">5.) Is this only an issue for the poorer members of society? Why?

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">6.) What does research into this issue is the main cause of these negative effects?

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">7.) What can be done to reduce income inequality? (try and add some points from your own knowledge here too)

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Task: Now find a video or article of your own that looks at any aspect of inequality and give a brief presentation to the rest of the class. You can post the videos to this page. Topics you could look at are causes, consequences and cures.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">US Inequality

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<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">An attempt to objectively argue for greater equality, without even looking at ethics: [|Guardian UK]

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">An interesting [|article on Canadian inequality]and how inequality can cause social ills even when there is little or no absolute poverty

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">And another one here from Thomas Wren if you can access ....[]

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|And an article from the World Bank]

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">[|And a great one from the FT on how economic growth has led to inequality in Asian developing countries]