EQUITY IN THE DISTRIBUTION OF INCOME

Equity in income distribution:

Explain the difference between equity in the distribution of income and equality in the distribution of income.
Explain how, 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.
Explain how the Gini coefficient is derived and interpreted.
Distinguish between absolute and relative poverty.
Explain possible causes of poverty.
Explain possible consequences of poverty.
Distinguish between direct and indirect taxes as a mechanism to redistribute income.
Distinguish between progressive, regressive and proportional taxation, providing examples of each.
Calculate the marginal rate of tax and the average rate of tax from a set of data.
Explain how governments undertake expenditures to provide directly, or to subsidise, a variety of socially desirable goods and services, thereby making them available to those on low incomes.
Explain the term transfer payments and provide examples.

tok: WHAT IS POVERTY? WHAT IS EQUITY? WHEN IS EQUITY ACHIEVED?

Income equality
The ratio of the share of national income going to the richest 20% of households in a country to the share of the poorest 20% is a useful measure of inequality. Figures from the World Bank show that by this indicator many of the world's most unequal countries are in Latin America.

Does raising all boats lift the tide?
SO LONG one believes that incentives matter, it stands to reason that economies need at least a little inequality to grow. If one could do just as well financially not innovating and not risk-taking as innovating and risk-taking, then there would probably be quite a lot less of both, with undesirable consequences for output.

Inequality v growth
ON THE campaign trail in 2008 Barack Obama stumbled into a memorable encounter with Joe "the Plumber" Wurzelbacher. Explaining the logic of a proposal to raise taxes on the rich, Mr Obama mused that "when you spread the wealth around, it's good for everybody".

The rich, the poor and the growing gap between them
Getty Images AMERICANS do not go in for envy. The gap between rich and poor is bigger than in any other advanced country, but most people are unconcerned. Whereas Europeans fret about the way the economic pie is divided, Americans want to join the rich, not soak them.

the knowledge gap and the desirability gap to income inequality

Milton Friedman - a neo-classical/monetarist view of poverty and inequity

Paul krugman a neo-keynesian on poverty and transfer payments

Opinion | Benefits, Work, and Poverty
Back in 2014 Paul Ryan declared that the War on Poverty had failed, so it was time to slash spending on anti-poverty programs. Last week the Trump Council of Economic Advisers declared not only that the War on Poverty has in fact substantially reduced poverty - which is what progressives have been saying all along - but that poverty is " largely over ".

Robert Rech A NEO-KEYNESIAN ON POVERTY AND TRANSFER PAYMENTS

mEASURING POVERTY, THE GINI COEFFICIENT AND LORENZ CURVE

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Oxford Income Inequality Chapter
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Absolute and relative poverty

ADAM SMITH argued in “The Wealth of Nations” that, whereas the ancient Greeks and Romans lived comfortably without linen shirts, in 18th-century Europe “a creditable day-labourer” would be ashamed to appear in public without one. That would denote a “disgraceful degree of poverty”, he wrote. The passage is often used to justify the view that poverty is relative.

Below the line
ADAM SMITH argued in "The Wealth of Nations" that, whereas the ancient Greeks and Romans lived comfortably without linen shirts, in 18th-century Europe "a creditable day-labourer" would be ashamed to appear in public without one. That would denote a "disgraceful degree of poverty", he wrote.

Measure by measure
MOST people have an inherent sense of what it means to be poor. But choosing a definition is much trickier. Is poverty an absolute or relative condition? What is a decent standard of living? Such questions have dogged America's social scientists for decades.

On the poverty line
IN DECEMBER 2007 the World Bank unveiled the results of the biggest exercise in window shopping in history. Scouts in 146 countries scoured stalls, supermarkets and mail-order catalogues, recording the price of more than 1,000 items, from 500-gram packets of durum spaghetti to low-heeled ladies' shoes.

Causes of poverty

Are eight men as wealthy as half the world's population?
EVERY ten minutes, black Volkswagen shuttle vans ferry delegates from their hotels in Davos, Switzerland, to this year's World Economic Forum, held from January 17th to 20th. If you could squeeze the world's eight richest men into one of these vans, they might feel cramped.

In-work poverty hits 2.9 million children
A record 2.9 million children from working families in the UK are living in poverty after housing costs have been paid, the latest figures show. This means 70% of all poor children were in working families last year, up from 67% on the previous year, official statistics show.

Inherited wealth
WHILE Downton Abbey may be a popular TV series, not many people see it as a model for how society should function. The age of aristocracy, along with inherited wealth and privilege, are behind us; we are all meritocrats now. But is that really true?

The IMF adds to a chorus of concern about competition
PHYSICISTS' QUEST for a "theory of everything" to explain all of their observations about the world is well-known. The equivalent in economics is the hunt for common causes for the rich-world macroeconomic trends of the past decade or so: a shrinking share of the economic pie for workers, disappointing investment and lacklustre productivity growth.

When a job is not enough
"WORK remains the best route out of poverty," the British government argues. The hourly minimum wage for workers aged 25 years or more now stands at £7.20 ($10.60), worth £252 a week to someone who works 35 hours. Unemployment benefit for the same age group is only £73.10 a week at best but Britain is a nation of strivers, not skivers.

Black boys are the least likely of any group to escape poverty
THAT African Americans are poorer than the American average is well-established. In 2016, the median household income of black Americans was $39,500 compared with $65,000 for non-Hispanic white Americans. Lower parental income and education levels are often cited as reasons for this gap.

Consequences of Poverty

Universal lessons
AS YOU WALK from classroom to classroom at Tibba Khara school on the outskirts of Lahore, Pakistan's second-biggest city, the children seem to disappear. Pandemonium prevails in the first classroom, packed with five- and six-year-olds in their first year of school.

Poverty in America
IT IS often said that efforts to fight poverty have failed. Surveys suggest only 5% of Americans think that anti-poverty programmes have had a big impact; 47% say they have had no impact or a negative one. And most people think that poverty is spreading-a view expressed by many politicians.

The scandal over Flint's water is a tale of poverty and race
The Poisoned City: Flint's Water and the American Urban Tragedy. By Anna Clark. Metropolitan Books; 320 pages; $30. What the Eyes Don't See: A Story of Crisis, Resistance and Hope in an American City. By Mona Hanna-Attisha. One World; 384 pages; $28. "YOU really do not want to miss this," says J.D.

To have and have not
"POVERTY", wrote Aristotle, "is the parent of crime." But was he right? Certainly, poverty and crime are associated. And the idea that a lack of income might drive someone to misdeeds sounds plausible.

Methods that can be used to promote equity (redistribute income and output)

American taxes are unusually progressive. Government spending is not
AMERICANS are not known for their love of income redistribution. Asked to rank, on a scale of one to ten, how important it is for democracies to reduce inequality, they say only six; Europeans say eight. Yet the country is hardly indifferent to who gets which slice of the economic pie.

Both in rich and poor countries, universal health care brings huge benefits
IN MAY 2014 DOZENS of mourners attended the funeral of a healer in the Kailahun District of eastern Sierra Leone. She had died after tending to people struck by fever, vomiting and bloody diarrhoea. As women ritually washed her corpse, 14 of them contracted the virus that had killed her and many who had sought her remedies.

Capitalism needs a welfare state to survive
IN THE mythologies of both left and right, the welfare state is a work of socialism. Yet the intellectual tradition it owes most to is liberalism. The architect of its British version, William Beveridge, did not want to use the power of the state for its own sake.

India floats the idea of a universal basic income
NOVEMBER 8th was not just the day of Donald Trump's election. It was also when Indians found out most banknotes would lose all value unless promptly exchanged. Ever since, many have expected their patience in enduring the ensuing chaos to be rewarded in some way.

How effective are progressive taxes at distributing wealth?

THE LAFFER CURVE

Cocktail-bar calculations
NOT many economists find fame in a cocktail lounge. But it was in just such a venue that Arthur Laffer in 1974 drew the "Laffer curve" on the back of a convenient napkin. The sketch, still more popular with politicians than economists, illustrated how lower tax rates, by spurring growth, might leave tax revenues undiminished.

The case for flat taxes
AN ARTFUL taxman, according to Jean-Baptiste Colbert, treasurer to Louis XIV, so plucks the goose as to obtain the most feathers for the least hissing. Such arts are lost in America. As the April 15th deadline for filing tax returns falls due, the hissing is as audible as ever.

2022 Would a more progressive tax system and more public expenditure reduce income inequity?

DEBATE ACTIVITY: Many economists believe that the way to greater equity in society is a more progressive tax system with the rich paying a greater proportion of their income in taxes to the government. The thinking follows that this will not only even out earnings but the tax revenue can be spent on merit goods such as health and education to create more opportunities for those living in poverty to exit poverty. Alternative viewpoints such as allowing free market s to create their own incentives are popular too. The main thinking follows that any transfer of wealth from the rich to the poor will lessen and reduce free market incentives and economic growth will fall over time. Inequity may well grow but overall people in society, rich and poor will be better off if incentives are strong. So which side of the debate do you fall on?

In order to prepare for a debate you need to state your position on the Padlet below using all of the learning from the handout and using evidence from the articles above to set out your main position. Here is a structure to help you write your position, once you have arrived at your position you need to copy and paste it on the right side of the line in favor or against. We will use this as a means of starting the debate. Everyone must post at least one 100 word comment to the Padlet, but there is no limit to the number of posts (including comments, diagrams and memes if they are appropriate) you can include. I will be moderating the page and encouraging non contributors to add their comment in advance of the debate.

Structure:

What's your position: Are you 'for' or are you 'against' the proposition of more progressive taxes and greater expenditure?
What is your reasoning and do you have evidence from the articles above to support this reasoning?
Is your reasoning different from others, if it isn't perhaps try to develop another reason to support your position
Finally cut and paste your 100 words either above or below the line (Above the line is for and below is against)
Perhaps think about including a diagram or resort to authority such as quoting an economist to support your own comment.

EXTRA RESOURCES:

A summary of how inequity can lead to unstable economic systems

Masters of Money Episode 3 Karl Marx