Trends in income inequality and its impact on economic. Social inequality and social stratification, according to this view, lead to a meritocracy based on ability conflict theorists, on the other hand, view inequality as. Extending the concept of income to economic wellbeing and coping with heterogeneity 44 5. This distinct area of study has been built upon new insights in welfare economics and on the relationship to information theory. Housing, for example, is inequality of conditions with the homeless and those living in housing projects sitting at the bottom of the hierarchy while those living in multimillion dollar mansions sit at the top. Development strategy and policy analysis unit department of. Consider an increase in income inequality that lowers the income of the median voter but leaves mean income unchanged. Social welfare, income inequality, and tax progressivity. Globalization and its development globalization means the phenomenon of the integration of national economies in the global level by the development of international movements of factors of.
Some people consider high levels of income inequality are morally undesirable. Durlauf department of economics, university of wisconsin, madison, wl 53706 and national bureau of economic research this paper explores the dynamics of income inequality by studying the evolution of human capital investment and neighborhood choice for a population of families. Using the gini coefficient to measure income inequality figure 2. Overallhigh income inequality and low social mobility are both important parts of the high military spending empire theory. In this chapter, we will study about the economic aspects of income inequality and poverty.
We use a dynamic specification to estimate the impact of trade on withincountry income inequality in a sample of 70 dcs over the 19801999 period. Income inequality refers to the extent to which income is distributed in an uneven manner among a population. Countries with high income inequality will have a higher gini value than more equal ones, and vice versa. The paper shows that income inequality may theoretically lead to higher economic growth if public consumption enters the utility function. An altemative hypothesis to country income inequality. What fraction of all household income is received by the poorest fifth quintile.
The lower tax rates for upper income taxpayers also roughly double the number of people subject to the amt over the next table 5. Startling levels of poverty in the late 1990s pushed the income inequality debate to refocus. Income disparities are so pronounced that americas top 10 percent now average more than nine times as much income as the bottom 90 percent, according to data analyzed by uc berkeley economist emmanuel saez. Jan 28, 2020 inequality of conditions refers to the unequal distribution of income, wealth, and material goods. Cramer says that the long history of interest in the links between inequality and violent conflict has not been matched by an evolving progression in theory or empirical certainty. Pdf income inequality in the developing world researchgate.
The paper also evaluates the human capital accumulation theory finding evidence. We document a rapid increase in income inequality in chinas recent past, capitalizing on newly available survey data collected by several chinese university survey organizations. Income of q1 declined 19681993, has stayed about the same since 1993. Income distribution and inequality lse research online. Jan 23, 2014 debunking income inequality theory income inequality theory is a lot like ancient astronaut theory, in that in order to believe in it, you have to disregard a lot of evidence to the contrary.
Functionalist theorists believe that inequality is inevitable and desirable and plays an important function in society. Much of the literature on the link between economic growth and income inequality is based on kuznets revolutionary theory. Development strategy and policy analysis unit department. The more problematic issues are the extent to which discrimination is in fact a significant source of inequality and whether such discriminationbased. Global, intercountry, and within countries zia qureshi 1 over the last three decades, inequality between countries has decreased while inequality within. Properties of productivity shocks the conditional probability of a productivity shock depends on fl,t,t, the empirical prob ability distribution over incomes for families in neighborhood d at t. Nov 07, 2019 income inequality is an economic concept that tends to hit some segments of populations harder than others, with significant wage gaps often identified for women, african americans, and hispanics. Globalization and wage inequality harvard university. In the redistributive model, the wider this gap, the more the median voter gains from welfare expenditures. Such a coefficient ranks how income is distributed in a nation on a scale originally from 0 perfect equality to 1 perfect inequality, meaning everything is owned by a single individual, which is then typically multiplied by 100. Inequality of opportunity, income inequality and economic. The economic literature on optimal income taxation addresses the question of how to design. New oecd research shows that when income inequality rises, economic growth falls.
In the last 25 years the gini index the widely used measure of income inequality has increased by roughly 22% in germany, % in canada, % in uk, 8% in italy and 6. By now, chinas income inequality not only surpasses that of the united states by a large margin but also ranks among the highest in the world, especially in comparison with countries with comparable or higher. By now, chinas income inequality not only surpasses that of the united states by a large margin but also ranks among the highest in the world, especially in comparison with. The lorenz curve has a bowed shape because of income inequality. Between the great roman empire and the modern american empire lies the doldrums of europe in the middle ages. In addition, both spending and the financing of spending can affect income inequality, and the two effects could in theory either reinforce or counteract each other.
This thesis uses educational attainment data from barro and lee 20 to proxy human capital and income inequality measure from the standardizing world income inequality database, which is presented as the gini coefficient. A third strand, trying to link theory with empirical research, can be traced back to max. Dec 17, 2002 the paper shows that income inequality may theoretically lead to higher economic growth if public consumption enters the utility function. Widespread increases in income inequality have raised concerns about their potential impact on our societies and economies. If income were perfectly equally distributed, then the poorest 20% of hh would receive 20%. Startling levels of poverty in the late 1990s pushed the income inequality debate to. The default view is a chart of gini coefficients for each oecd country, a measurement scale of 0 to 1, where 0 represents complete equality of income in a country and 1 represents 1 person having all of the income in. Theoretical approaches to inequality in economics and. Economic theory suggests that inequality affects aggregate output and that the effects differ between rich and poor countries. Income inequality is an economic concept that tends to hit some segments of populations harder than others, with significant wage gaps often identified for women, african americans, and hispanics. Theoretical approaches to inequality in economics and sociology. This pdf is a selection from an outofprint volume from the national bureau of economic research volume title.
Empirically, baseline estimations and a sensitivity analysis show that income inequality is positively, and most of the time significantly, associated with economic growth. Theory paul s marginal utility peter s marginal utility o i o income inequality in the us over time question. Income distribution, economic inequality and social justice 41 5. Focus on inequality and growth december 2014 directorate for employment, labour and social affairs does income inequality hurt economic growth. This precludes any analysis of the relationship between growth and inequality. For more equal democracies, the probability of failure was only. Lets start with the most basic premise of income inequality theory. This was, and stillremains, the dominant and the most important type of income inequality. Interest in personal income distribution goes back to about 100. Recently, galor and moav 2004 provided a unified theory in which the. Our results suggest that total aggregate trade flows are weakly related with income inequality. In recent years the subject of economic inequality has developed in such a way as to have a life of its own separate from the obvious connection with the. While inequality of income declined in a number of emerging econo mies, particularly in latin america, it increased significantly in most oecd countries. Few would challenge the idea that inequality of income based on discrimination is unjust.
Income inequality in the united states is the extent to which income is distributed in an uneven manner among the american population. Economic fluctuations and growth this paper explores the dynamics of income inequality by studying the evolution of human capital investment and neighborhood choice for a population of families. The longterm rise in income inequality in the oecd area. Schumpeterian growth theory and the dynamics of income. Delayed retirement and the growth in income inequality at. Schumpeterian growth theory and the dynamics of income inequality by philippe aghiony may 10, 2001 1 introduction recent growth theories1 have been concerned mainly with the analysis of technical change and aggregate growth in economies with identical agents. These concerns are no less relevant today and attention to them.
Others focus on income inequality as bad for instrumental reasons seeing it as causing conflict, limiting cooperation or creating psychological and. Pdf should income inequality be of concern in developing countries. A theory of persistent income inequality university of chicago. The analysis finds evidence of a kuznets curve for inequality of opportunity, and finds that the ieo index is positively correlated with overall income inequality, and negatively with.
Estimated distribution of income and estate tax changes, 2010 calendar year income tax estate taxa percent of percent percent of total tax percentage total tax percentage total income change in. From the inequality of income to that of opportunities and social justice 46 5. Income inequality an overview sciencedirect topics. In this paper, we investigate the relationships among gender inequality, income, and growth, using data for over 100 countries over the past three decades. Our primary focus is on gender inequality in educational attainment, but it is useful to bring in other measures as well because they reinforce our basic story. In the case of the united states, the distributions of income, wages, and wealth are more dispersed than ever. Medievalism is a special case of empire, characterized by the relative economic stagnation. Debunking income inequality theory income inequality theory is a lot like ancient astronaut theory, in that in order to believe in it, you have to disregard a lot of evidence to the contrary. We show that when government spends tax revenue on the provision of public goods in the form of both production and consumption services, the. It has fluctuated considerably since measurements began around 1915, moving in an arc between peaks in the 1920s and 2000s, with a 30year period of relatively lower inequality between 19501980. Important positions in society require more training and thus should receive more rewards.
The theory is supposed to apply equally to underemployment and fullemployment situations though kaldor and robinson would. But the theory of a race between technological progress and. Discrimination and income inequality social philosophy. Discrimination against particular groups has existed throughout history and in all types of societies. Income inequality income inequality is an indicator of how material resources are distributed across society. We reexamine the theoretical and empirical relationship between income inequality and economic growth in an endogenous growth model with a at tax on income, distributive conflicts among agents and median voter dynamics. Wealth and income inequality in advanced and emerging market. May, 2014 we document a rapid increase in income inequality in chinas recent past, capitalizing on newly available survey data collected by several chinese university survey organizations. A reexamination of theory and evidence, authormehmet balcilar and rangan gupta and wei ma and philton makena, year2018. Meltzer and richard 1981 5 the gini coefficient is a standard measure of income inequality. Income inequality is a complex phenomenon with many factors likely playing a role in its rise, and as such, opportunities exist for developing new ideas that can explain crossnational rates of income inequality, complementing and extending our current perspectives of the phenomenon. Durlauf department of economics, university of wisconsin, madison, w153706 and national bureau of economic research this paper explores the dynamics of income inequality by studying the evolution of human capital investment and neighborhood choice for a population of families. The development of globalization and income inequality 1. Galor and zeira 1993 proposed a model with credit market.