Inequality And The Redistribution Of Income
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Inequality And The Redistribution Of Income as PDF for free.
More details
- Words: 2,868
- Pages: 98
Inequality and the Redistribution of Income
Inequality and the Redistribution of Income
Inequality and Poverty
INEQUALITY AND POVERTY ■
■
Types of inequality ✜
size distribution of income
✜
functional distribution of income
✜
distribution of income by recipient
✜
distribution of wealth
✜
poverty: absolute and relative
Measuring the size distribution of income ✜
Lorenz curves
Lorenz curve
Percentage share of national income (cumulative)
100
80 Line of complete equality
60
40
20
O
O
20
40
60
Percentage of population
80
100
Lorenz curve
Percentage share of national income (cumulative)
100
80 Line of complete equality
60
40
Lorenz curve
20
O
O
20
40
60
Percentage of population
80
100
INEQUALITY AND POVERTY ■
Types of inequality size distribution of income ✜ functional distribution of income ✜ distribution of income by recipient ✜ distribution of wealth ✜ poverty: absolute and relative ✜
■
Measuring the size distribution of income Lorenz curves ✜ Gini coefficients ✜
Lorenz curve and Gini coefficient 100
Percentage share of national income (cumulative)
Gini coefficient = A / (A + B) 80 Line of complete equality
60
A
40
B Lorenz curve
20
O
O
20
40
60
Percentage of population
80
100
Lorenz curve: UK households’ pre-tax incomes: 2000/1
Percentage share of national income (cumulative)
100
80
60
40 x
24.6 20
O
Lorenz curve
O
20
5 60 80 0 Percentage of population 40
100
Lorenz curves for two countries with the same Gini coefficient
Percentage share of national income (cumulative)
100
80
Area X = area Y Y
60
40 Country B 20 X Country A O
O
20
40
60
Percentage of population
80
100
INEQUALITY AND POVERTY ■
■
Types of inequality ✜
size distribution of income
✜
functional distribution of income
✜
distribution of income by recipient
✜
distribution of wealth
✜
poverty: absolute and relative
Measuring the size distribution of income ✜
Lorenz curves
✜
Gini coefficients
✜
ratios of shares of quantile groups
Ratio of income shares of bottom 40% to top 20% of households (after taxes and benefits)
INEQUALITY AND POVERTY ■
Distribution in the UK ✜
size distribution
Size distribution of UK income by quintile group of households: 2000/1 Bottom 20% 2%
Next 20%
7%
Top 20%
15%
Middle 20%
51%
25%
Next 20%
Income before taxes and benefits
Size distribution of UK income by quintile group of households: 2000/1 Bottom 20% 2%
Next 20%
7%
Top 20%
15%
Middle 20%
51%
Bottom 20% Top 20%
6%
Next 20% 11%
45% 16%
Middle 20%
25% 22%
Next 20% Next 20%
Income before taxes and benefits
Income after taxes and benefits
Percentage shares of income before and after tax by decile group of households: 2000/1 30
26.8
% of income
25
Income before tax
20
15.7 15 10 5
12.9
11.1
9.0
7.6
6.0
4.7
3.8
2.5
0 Top 10% 11 to 20 21 to 30 31 to 40 41 to 50 51 to 60 61 to 70 71 to 80 81 to 90
Bottom 10%
Source: Economic Trends (ONS, April 2002)
Percentage shares of income before and after tax by decile group of households: 2000/1 30
26.8 25.8
% of income
25
Income before tax
20 15 10 5
15.715.2
Income after tax 12.912.6
11.110.9
9.0 9.1
7.6 7.8
6.0 6.3
4.7 5.2 3.8 4.2
2.5 2.8
0 Top 10% 11 to 20 21 to 30 31 to 40 41 to 50 51 to 60 61 to 70 71 to 80 81 to 90
Bottom 10%
Source: Economic Trends (ONS, April 2002)
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source
Sources of UK household income as a percentage of gross household income Wages and salaries
Income from self employment
Investment income
Pensions, annuities
Social security benefits
Other
1% 2% 10% 4% 6%
77%
1975 Source: Family Spending (ONS, 2002)
Sources of UK household income as a percentage of gross household income Wages and salaries
Income from self employment
Investment income
Pensions, annuities
Social security benefits
Other
1%
1%
2% 10% 4%
12% 7%
6%
4% 9% 77%
1975
67%
2000/1 Source: Family Spending (ONS, 2002)
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation
Average gross weekly earnings of UK full-time adult male employees: 2001
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household
composition
Weekly income for different types of UK households: 2000/1 £700 £600
Gross income
£500 £400 £300 £200 £100 £0
One adult (not retired)
One adult, two or more children
One man, one woman (not retired)
Two adults, four or more children
Source: Family spending (ONS,2002)
Weekly income for different types of UK households: 2000/1 £700 £600
Gross income Disposable income
£500 £400 £300 £200 £100 £0
One adult (not retired)
One adult, two or more children
One man, one woman (not retired)
Two adults, four or more children
Source: Family spending (ONS,2002)
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household ✦ sex
composition
Average gross weekly earnings of UK full-time adult female employees: 2001 Medical practitioners Financial managers Personnel managers Secondary teachers Police officers Nurses Secretaries Clerks Sales assistants Bar staff £0
£200
£400
£600
£800
£1,000
Average gross weekly earnings of UK full-time adult employees: 2001 Financial managers Medical practioners Personnel managers Secondary teachers Nurses
Women's earnings
Factory lineworkers
Men's earnings
Clerks Sales assistants Bar staff 0
200
400
600
800
1000
1200
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household
composition
✦ sex ✦ ethnic
group
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household
composition
✦ sex ✦ ethnic
group ✦ location
Gross weekly household income: Selected UK regions: 2000/1 £650 £600 £550 £500 £450
UK (average)
London
South-East
Scotland
£250
North-East
£300
N. Ireland
£350
West Midlands
£400
£200
Source: Family spending (ONS,2002)
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household
composition
✦ sex ✦ ethnic
group ✦ location ✜
distribution of wealth
Composition of UK wealth Stocks and shares
Notes, coin and deposits with banks, etc.
Tenancy rights
Other fixed assets
Life assurance and pension funds
15% 26% 23%
23% 12% 7%
1971
– 6%
Dwellings (net of mortgage debt)
Other financial assets (net of liabilities)
Composition of UK wealth Stocks and shares
Notes, coin and deposits with banks, etc.
Tenancy rights
Other fixed assets
Life assurance and pension funds
Dwellings (net of mortgage debt)
Other financial assets (net of liabilities) 1%
15% 26%
– 6%
16% 35%
23%
14%
23% 12%
5% 26%
3%
7%
1971
2000
INEQUALITY AND POVERTY ■
The causes of inequality ✜ ✜
inequality of wealth differences in workers’ ability; qualifications ✦ attitudes ✦ hours worked ✦ economic power ✦ qualifications ✦
✜ ✜ ✜ ✜ ✜
■
differences in demand for goods differences in household composition discrimination degree of government support unemployment
Government attitudes towards inequality
Inequality and the Redistribution of Income
Taxes and Benefits
TAXES AND BENEFITS ■
Role of taxes and benefits ✜
redistribution of income
✜
achievement of social efficiency
✜
macroeconomic management
■
Requirements of a good tax system
■
Types of tax ✜
direct taxes
✜
indirect taxes
Balance of taxation in different countries
TAXES AND BENEFITS ■
Taxes and the redistribution of income ✜
progressive taxes
✜
regressive taxes (including lump-sum taxes)
✜
proportional taxes
Different types of tax: (a) total tax paid Progressive
Total tax paid (T)
Regressive
Proportional Lump-sum
O Total income (Y)
Different types of tax: (b) average tax paid
Average tax paid (T/Y)
Progressive
Proportional
Regressive Lump-sum O Total income (Y)
TAXES AND BENEFITS ■
■
Taxes and the redistribution of income ✜
progressive taxes
✜
regressive taxes (including lump-sum taxes)
✜
proportional taxes
UK taxes and the redistribution of incomes ✜
direct taxes
UK marginal income tax and national insurance rates: 2002/3
UK marginal income tax and national insurance rates: 2002/3
UK marginal income tax and national insurance rates: 2002/3
UK average income tax plus national insurance rates: 2002/3
UK average and marginal rates of income tax for a single person: 2002/3 Marginal rate
Tax rate (%)
40
22
10
O
4615
6535
Individual’s pre-tax income (£)
34 515 (= 4615 + 29 900)
UK average and marginal rates of income tax for a single person: 2002/3 Marginal rate
Tax rate (%)
40
22
Average rate 10
O
4615
6535
Individual’s pre-tax income (£)
34 515 (= 4615 + 29 900)
Tax rate (%)
UK average and marginal rates of income tax plus NIC: 2002/3 Marginal rate
40 32 22 20
O
4535
6415
29 900
Individual’s pre-tax annual income (£)
33 935
Tax rate (%)
UK average and marginal rates of income tax plus NIC: 2002/3 Marginal rate
40 32
Average rate
22 20
O
4615
6535
30 420
Individual’s pre-tax annual income (£)
34 515
TAXES AND BENEFITS ■
■
Taxes and the redistribution of income ✜
progressive taxes
✜
regressive taxes (including lump-sum taxes)
✜
proportional taxes
UK taxes and the redistribution of incomes ✜
direct taxes
✜
indirect taxes
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
incidence of taxation
Wage rate
Incidence of an income tax: elastic supply of labour
S W1
D O
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W1
D O
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W2 W1
D O
Q2
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W2 W1
W2 - tax
D O
Q2
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W2 W1
W2 - tax
A A: worker share of tax
D O
Q2
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W2 W1
W2 - tax
B
B: employer share of tax
A
A: worker share of tax
D O
Q2
Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S
W1
D O
Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S + tax S
W2 W1
D O
Q2 Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S + tax S
W2 W1
W2 - tax
D O
Q2 Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S + tax S
W2 W1
W2 - tax
A
A: worker share of tax
D O
Q2 Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S + tax S
W2 W1
W2 - tax
B: employer share of tax B A
A: worker share of tax
D O
Q2 Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour Incidence of an income tax: inelastic supply of labour S + tax S
S W2
W1 W2 - tax
B
B: employer share of tax
A
A: worker share of tax
Wage rate
Wage rate
S + tax
W2 W1
W2 - tax
B: employer share of tax B A
A: worker share of tax
D
D O
Q2 Q1 Quantity of labour
O
Q2 Q1 Quantity of labour
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
✜
incidence of taxation
economic costs of redistribution
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
✜
incidence of taxation
economic costs of redistribution ✦ distortionary
effects of taxes
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
✜
incidence of taxation
economic costs of redistribution ✦ distortionary ✦ deadweight
effects of taxes
welfare loss of taxes
Indirect tax applied to good X £
S P1
D O
Q1
Quantity
Indirect tax applied to good X £ S + tax S Tax
P2 P1
D O
Q2
Q1
Quantity
Indirect tax applied to good X £ S + tax
S (=MC) P2 P1
P2 - tax
D O
Q2
Q1
Quantity
Indirect tax applied to good X £ S + tax C P2 P1
B
S (=MC) A
P2 - tax
D O
Q2
Q1
Quantity
Indirect tax applied to good X £ S + tax C P2 P1
P2 - tax
B E F
S (=MC) A
D
D O
Q2
Q1
Quantity
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
✜
incidence of taxation
economic costs of redistribution ✦ distortionary ✦ deadweight
effects of taxes
welfare loss of taxes
✦ disincentives
Total tax revenue
A Laffer curve
0
100 Average tax rate (%)
A Laffer curve
Total tax revenue
R max.
0
t1 Average tax rate (%)
100
TAXES AND BENEFITS ■
Taxation and incentives ✜
income and substitution effects of higher taxes
✜
different effects on different types of people
✜
different types of tax increase ✦ raising
the higher rates of tax
✦ raising
the basic rate
✦ reducing
■
tax allowances
The effects of tax cuts
Tax cuts and incentives (a) The position with no income tax
Daily income
Ymax
Budget line O
Lmax Leisure (hours)
Tax cuts and incentives (a) The position with no income tax
Daily income
Ymax
I3 I2
Budget line O
I1 Lmax
Leisure (hours)
Tax cuts and incentives (a) The position with no income tax
Daily income
Ymax
Y*
I3 I2
Budget line O
L* Leisure (hours)
I1 Lmax
Tax cuts and incentives (b) The position with income tax
Daily income
Ymax
Y2
I4 Y1
I3
I2
I1
O
Lmax Leisure (hours)
Tax cuts and incentives (b) The position with income tax
Daily income
Ymax
Y2
Y**
b I4
Y1 O
I3
I2
I1 L** Leisure (hours)
Lmax
Tax cuts and incentives (b) The position with income tax
Daily income
Ymax
Y2
Y**
a b I4
Y1 O
I3
I2
I1 L* L** Leisure (hours)
Lmax
Tax cuts and incentives
Daily income
(c) Cut in the basic rate of tax
O Leisure (hours)
Tax cuts and incentives
Daily income
(c) Cut in the basic rate of tax
r Person W
O
LW 1 Leisure (hours)
Tax cuts and incentives
Daily income
(c) Cut in the basic rate of tax
s r Person W
O
LW 2 LW 1 Leisure (hours)
Tax cuts and incentives
Daily income
(c) Cut in the basic rate of tax
s r q
Person W
Person X O
LW 2 LW 1
LX
Leisure (hours)
Tax cuts and incentives
Daily income
(d) Increase in the tax threshold
r
t
O Leisure (hours)
Tax cuts and incentives
Daily income
(d) Increase in the tax threshold
O
L1 Leisure (hours)
Tax cuts and incentives
Daily income
(d) Increase in the tax threshold
O
L1 L2 Leisure (hours)
TAXES AND BENEFITS ■
Cash benefits ✜
means-tested benefits
✜
universal benefits
■
Benefits in kind
■
Benefits and the redistribution of income
Social protection benefits in various European countries: (a) €per head 8000
1999
7000
5000 4000 3000 2000 1000
EU15
UK
Sweden
Spain
Portugal
Netherlands
Italy
Ireland
Greece
Germany
France
Denmark
0 Belgium
Euro per head
6000
Source: Eurostat, 2002
Social protection benefits in various European countries: (b) % of GDP 35
1990 30
1999
20 15 10 5
EU15
UK
Sweden
Spain
Portugal
Netherlands
Italy
Ireland
Greece
Germany
France
Denmark
0 Belgium
% of GDP
25
Source: Eurostat, 2002
TAXES AND BENEFITS ■
■
The problem of the poverty trap ✜
an argument for universal benefits
✜
problems with universal benefits
The negative income tax system ✜
how it would work
A negative income tax system
A negative income tax system
A negative income tax system
A negative income tax system
TAXES AND BENEFITS ■
■
The problem of the poverty trap ✜
an argument for universal benefits
✜
problems with universal benefits
The negative income tax system ✜
how it would work
✜
advantages and disadvantages
Inequality and the Redistribution of Income
Inequality and Poverty
INEQUALITY AND POVERTY ■
■
Types of inequality ✜
size distribution of income
✜
functional distribution of income
✜
distribution of income by recipient
✜
distribution of wealth
✜
poverty: absolute and relative
Measuring the size distribution of income ✜
Lorenz curves
Lorenz curve
Percentage share of national income (cumulative)
100
80 Line of complete equality
60
40
20
O
O
20
40
60
Percentage of population
80
100
Lorenz curve
Percentage share of national income (cumulative)
100
80 Line of complete equality
60
40
Lorenz curve
20
O
O
20
40
60
Percentage of population
80
100
INEQUALITY AND POVERTY ■
Types of inequality size distribution of income ✜ functional distribution of income ✜ distribution of income by recipient ✜ distribution of wealth ✜ poverty: absolute and relative ✜
■
Measuring the size distribution of income Lorenz curves ✜ Gini coefficients ✜
Lorenz curve and Gini coefficient 100
Percentage share of national income (cumulative)
Gini coefficient = A / (A + B) 80 Line of complete equality
60
A
40
B Lorenz curve
20
O
O
20
40
60
Percentage of population
80
100
Lorenz curve: UK households’ pre-tax incomes: 2000/1
Percentage share of national income (cumulative)
100
80
60
40 x
24.6 20
O
Lorenz curve
O
20
5 60 80 0 Percentage of population 40
100
Lorenz curves for two countries with the same Gini coefficient
Percentage share of national income (cumulative)
100
80
Area X = area Y Y
60
40 Country B 20 X Country A O
O
20
40
60
Percentage of population
80
100
INEQUALITY AND POVERTY ■
■
Types of inequality ✜
size distribution of income
✜
functional distribution of income
✜
distribution of income by recipient
✜
distribution of wealth
✜
poverty: absolute and relative
Measuring the size distribution of income ✜
Lorenz curves
✜
Gini coefficients
✜
ratios of shares of quantile groups
Ratio of income shares of bottom 40% to top 20% of households (after taxes and benefits)
INEQUALITY AND POVERTY ■
Distribution in the UK ✜
size distribution
Size distribution of UK income by quintile group of households: 2000/1 Bottom 20% 2%
Next 20%
7%
Top 20%
15%
Middle 20%
51%
25%
Next 20%
Income before taxes and benefits
Size distribution of UK income by quintile group of households: 2000/1 Bottom 20% 2%
Next 20%
7%
Top 20%
15%
Middle 20%
51%
Bottom 20% Top 20%
6%
Next 20% 11%
45% 16%
Middle 20%
25% 22%
Next 20% Next 20%
Income before taxes and benefits
Income after taxes and benefits
Percentage shares of income before and after tax by decile group of households: 2000/1 30
26.8
% of income
25
Income before tax
20
15.7 15 10 5
12.9
11.1
9.0
7.6
6.0
4.7
3.8
2.5
0 Top 10% 11 to 20 21 to 30 31 to 40 41 to 50 51 to 60 61 to 70 71 to 80 81 to 90
Bottom 10%
Source: Economic Trends (ONS, April 2002)
Percentage shares of income before and after tax by decile group of households: 2000/1 30
26.8 25.8
% of income
25
Income before tax
20 15 10 5
15.715.2
Income after tax 12.912.6
11.110.9
9.0 9.1
7.6 7.8
6.0 6.3
4.7 5.2 3.8 4.2
2.5 2.8
0 Top 10% 11 to 20 21 to 30 31 to 40 41 to 50 51 to 60 61 to 70 71 to 80 81 to 90
Bottom 10%
Source: Economic Trends (ONS, April 2002)
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source
Sources of UK household income as a percentage of gross household income Wages and salaries
Income from self employment
Investment income
Pensions, annuities
Social security benefits
Other
1% 2% 10% 4% 6%
77%
1975 Source: Family Spending (ONS, 2002)
Sources of UK household income as a percentage of gross household income Wages and salaries
Income from self employment
Investment income
Pensions, annuities
Social security benefits
Other
1%
1%
2% 10% 4%
12% 7%
6%
4% 9% 77%
1975
67%
2000/1 Source: Family Spending (ONS, 2002)
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation
Average gross weekly earnings of UK full-time adult male employees: 2001
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household
composition
Weekly income for different types of UK households: 2000/1 £700 £600
Gross income
£500 £400 £300 £200 £100 £0
One adult (not retired)
One adult, two or more children
One man, one woman (not retired)
Two adults, four or more children
Source: Family spending (ONS,2002)
Weekly income for different types of UK households: 2000/1 £700 £600
Gross income Disposable income
£500 £400 £300 £200 £100 £0
One adult (not retired)
One adult, two or more children
One man, one woman (not retired)
Two adults, four or more children
Source: Family spending (ONS,2002)
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household ✦ sex
composition
Average gross weekly earnings of UK full-time adult female employees: 2001 Medical practitioners Financial managers Personnel managers Secondary teachers Police officers Nurses Secretaries Clerks Sales assistants Bar staff £0
£200
£400
£600
£800
£1,000
Average gross weekly earnings of UK full-time adult employees: 2001 Financial managers Medical practioners Personnel managers Secondary teachers Nurses
Women's earnings
Factory lineworkers
Men's earnings
Clerks Sales assistants Bar staff 0
200
400
600
800
1000
1200
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household
composition
✦ sex ✦ ethnic
group
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household
composition
✦ sex ✦ ethnic
group ✦ location
Gross weekly household income: Selected UK regions: 2000/1 £650 £600 £550 £500 £450
UK (average)
London
South-East
Scotland
£250
North-East
£300
N. Ireland
£350
West Midlands
£400
£200
Source: Family spending (ONS,2002)
INEQUALITY AND POVERTY ■
Distribution in the UK size distribution ✜ functional ✜
✦ by
source ✦ by occupation ✜
inequality by person/household type ✦ household
composition
✦ sex ✦ ethnic
group ✦ location ✜
distribution of wealth
Composition of UK wealth Stocks and shares
Notes, coin and deposits with banks, etc.
Tenancy rights
Other fixed assets
Life assurance and pension funds
15% 26% 23%
23% 12% 7%
1971
– 6%
Dwellings (net of mortgage debt)
Other financial assets (net of liabilities)
Composition of UK wealth Stocks and shares
Notes, coin and deposits with banks, etc.
Tenancy rights
Other fixed assets
Life assurance and pension funds
Dwellings (net of mortgage debt)
Other financial assets (net of liabilities) 1%
15% 26%
– 6%
16% 35%
23%
14%
23% 12%
5% 26%
3%
7%
1971
2000
INEQUALITY AND POVERTY ■
The causes of inequality ✜ ✜
inequality of wealth differences in workers’ ability; qualifications ✦ attitudes ✦ hours worked ✦ economic power ✦ qualifications ✦
✜ ✜ ✜ ✜ ✜
■
differences in demand for goods differences in household composition discrimination degree of government support unemployment
Government attitudes towards inequality
Inequality and the Redistribution of Income
Taxes and Benefits
TAXES AND BENEFITS ■
Role of taxes and benefits ✜
redistribution of income
✜
achievement of social efficiency
✜
macroeconomic management
■
Requirements of a good tax system
■
Types of tax ✜
direct taxes
✜
indirect taxes
Balance of taxation in different countries
TAXES AND BENEFITS ■
Taxes and the redistribution of income ✜
progressive taxes
✜
regressive taxes (including lump-sum taxes)
✜
proportional taxes
Different types of tax: (a) total tax paid Progressive
Total tax paid (T)
Regressive
Proportional Lump-sum
O Total income (Y)
Different types of tax: (b) average tax paid
Average tax paid (T/Y)
Progressive
Proportional
Regressive Lump-sum O Total income (Y)
TAXES AND BENEFITS ■
■
Taxes and the redistribution of income ✜
progressive taxes
✜
regressive taxes (including lump-sum taxes)
✜
proportional taxes
UK taxes and the redistribution of incomes ✜
direct taxes
UK marginal income tax and national insurance rates: 2002/3
UK marginal income tax and national insurance rates: 2002/3
UK marginal income tax and national insurance rates: 2002/3
UK average income tax plus national insurance rates: 2002/3
UK average and marginal rates of income tax for a single person: 2002/3 Marginal rate
Tax rate (%)
40
22
10
O
4615
6535
Individual’s pre-tax income (£)
34 515 (= 4615 + 29 900)
UK average and marginal rates of income tax for a single person: 2002/3 Marginal rate
Tax rate (%)
40
22
Average rate 10
O
4615
6535
Individual’s pre-tax income (£)
34 515 (= 4615 + 29 900)
Tax rate (%)
UK average and marginal rates of income tax plus NIC: 2002/3 Marginal rate
40 32 22 20
O
4535
6415
29 900
Individual’s pre-tax annual income (£)
33 935
Tax rate (%)
UK average and marginal rates of income tax plus NIC: 2002/3 Marginal rate
40 32
Average rate
22 20
O
4615
6535
30 420
Individual’s pre-tax annual income (£)
34 515
TAXES AND BENEFITS ■
■
Taxes and the redistribution of income ✜
progressive taxes
✜
regressive taxes (including lump-sum taxes)
✜
proportional taxes
UK taxes and the redistribution of incomes ✜
direct taxes
✜
indirect taxes
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
incidence of taxation
Wage rate
Incidence of an income tax: elastic supply of labour
S W1
D O
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W1
D O
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W2 W1
D O
Q2
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W2 W1
W2 - tax
D O
Q2
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W2 W1
W2 - tax
A A: worker share of tax
D O
Q2
Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour
Wage rate
S + tax S W2 W1
W2 - tax
B
B: employer share of tax
A
A: worker share of tax
D O
Q2
Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S
W1
D O
Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S + tax S
W2 W1
D O
Q2 Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S + tax S
W2 W1
W2 - tax
D O
Q2 Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S + tax S
W2 W1
W2 - tax
A
A: worker share of tax
D O
Q2 Q1 Quantity of labour
Incidence of an income tax: inelastic supply of labour
Wage rate
S + tax S
W2 W1
W2 - tax
B: employer share of tax B A
A: worker share of tax
D O
Q2 Q1 Quantity of labour
Incidence of an income tax: elastic supply of labour Incidence of an income tax: inelastic supply of labour S + tax S
S W2
W1 W2 - tax
B
B: employer share of tax
A
A: worker share of tax
Wage rate
Wage rate
S + tax
W2 W1
W2 - tax
B: employer share of tax B A
A: worker share of tax
D
D O
Q2 Q1 Quantity of labour
O
Q2 Q1 Quantity of labour
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
✜
incidence of taxation
economic costs of redistribution
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
✜
incidence of taxation
economic costs of redistribution ✦ distortionary
effects of taxes
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
✜
incidence of taxation
economic costs of redistribution ✦ distortionary ✦ deadweight
effects of taxes
welfare loss of taxes
Indirect tax applied to good X £
S P1
D O
Q1
Quantity
Indirect tax applied to good X £ S + tax S Tax
P2 P1
D O
Q2
Q1
Quantity
Indirect tax applied to good X £ S + tax
S (=MC) P2 P1
P2 - tax
D O
Q2
Q1
Quantity
Indirect tax applied to good X £ S + tax C P2 P1
B
S (=MC) A
P2 - tax
D O
Q2
Q1
Quantity
Indirect tax applied to good X £ S + tax C P2 P1
P2 - tax
B E F
S (=MC) A
D
D O
Q2
Q1
Quantity
TAXES AND BENEFITS ■
Problems in using taxes to redistribute incomes ✜
problems in achieving redistribution ✦ how ✦ tax
to help the very poor
evasion and avoidance
✦ undesired
✜
incidence of taxation
economic costs of redistribution ✦ distortionary ✦ deadweight
effects of taxes
welfare loss of taxes
✦ disincentives
Total tax revenue
A Laffer curve
0
100 Average tax rate (%)
A Laffer curve
Total tax revenue
R max.
0
t1 Average tax rate (%)
100
TAXES AND BENEFITS ■
Taxation and incentives ✜
income and substitution effects of higher taxes
✜
different effects on different types of people
✜
different types of tax increase ✦ raising
the higher rates of tax
✦ raising
the basic rate
✦ reducing
■
tax allowances
The effects of tax cuts
Tax cuts and incentives (a) The position with no income tax
Daily income
Ymax
Budget line O
Lmax Leisure (hours)
Tax cuts and incentives (a) The position with no income tax
Daily income
Ymax
I3 I2
Budget line O
I1 Lmax
Leisure (hours)
Tax cuts and incentives (a) The position with no income tax
Daily income
Ymax
Y*
I3 I2
Budget line O
L* Leisure (hours)
I1 Lmax
Tax cuts and incentives (b) The position with income tax
Daily income
Ymax
Y2
I4 Y1
I3
I2
I1
O
Lmax Leisure (hours)
Tax cuts and incentives (b) The position with income tax
Daily income
Ymax
Y2
Y**
b I4
Y1 O
I3
I2
I1 L** Leisure (hours)
Lmax
Tax cuts and incentives (b) The position with income tax
Daily income
Ymax
Y2
Y**
a b I4
Y1 O
I3
I2
I1 L* L** Leisure (hours)
Lmax
Tax cuts and incentives
Daily income
(c) Cut in the basic rate of tax
O Leisure (hours)
Tax cuts and incentives
Daily income
(c) Cut in the basic rate of tax
r Person W
O
LW 1 Leisure (hours)
Tax cuts and incentives
Daily income
(c) Cut in the basic rate of tax
s r Person W
O
LW 2 LW 1 Leisure (hours)
Tax cuts and incentives
Daily income
(c) Cut in the basic rate of tax
s r q
Person W
Person X O
LW 2 LW 1
LX
Leisure (hours)
Tax cuts and incentives
Daily income
(d) Increase in the tax threshold
r
t
O Leisure (hours)
Tax cuts and incentives
Daily income
(d) Increase in the tax threshold
O
L1 Leisure (hours)
Tax cuts and incentives
Daily income
(d) Increase in the tax threshold
O
L1 L2 Leisure (hours)
TAXES AND BENEFITS ■
Cash benefits ✜
means-tested benefits
✜
universal benefits
■
Benefits in kind
■
Benefits and the redistribution of income
Social protection benefits in various European countries: (a) €per head 8000
1999
7000
5000 4000 3000 2000 1000
EU15
UK
Sweden
Spain
Portugal
Netherlands
Italy
Ireland
Greece
Germany
France
Denmark
0 Belgium
Euro per head
6000
Source: Eurostat, 2002
Social protection benefits in various European countries: (b) % of GDP 35
1990 30
1999
20 15 10 5
EU15
UK
Sweden
Spain
Portugal
Netherlands
Italy
Ireland
Greece
Germany
France
Denmark
0 Belgium
% of GDP
25
Source: Eurostat, 2002
TAXES AND BENEFITS ■
■
The problem of the poverty trap ✜
an argument for universal benefits
✜
problems with universal benefits
The negative income tax system ✜
how it would work
A negative income tax system
A negative income tax system
A negative income tax system
A negative income tax system
TAXES AND BENEFITS ■
■
The problem of the poverty trap ✜
an argument for universal benefits
✜
problems with universal benefits
The negative income tax system ✜
how it would work
✜
advantages and disadvantages
Related Documents
Inequality And The Redistribution Of Income
November 2019 2
Income Inequality And Tax Dodging.docx
June 2020 6
Optimal Techniques Of Redistribution
August 2019 10
Stories Of Redistribution
November 2019 11
Wages And The Distribution Of Income
November 2019 4