Unit 3.3 - Addressing income and wealth inequality

• Income


  A flow concept: Returns to the various Factors of Production (FOP) are variable
• Wealth


  A stock of assets that has been built up over time e.g. property, shares and gold
• Factors of Production (FOP)

  • Labour - wages
  • Land - rent
  • Capital - interest
  • Enterprise - profit
• Gini coefficient


  A numerical measure of income inequality, usually between the values of 0 to 1. The closer to 0 the more equal the distribution.

  
• Reasons for inequality


  • Lack of formal employment opportunities
  • Poor vocational training
  • Lack of investment in education and health industries
  • Poor infrastructure
  • Low rate of savings
  • Inability to obtain credit
• Policies to redistribute income and wealth

  • Minimum wage rate
  • Transfer payments e.g. unemployment benefits
  • Progressive income taxes, inheritance tax and capital tax
  • State provision of essential goods and services
• Minimum wage rate


  • Problems: Irrelevant to large informal sectors and self-employed. Can lead to increased unemployment
• Transfer payments


  • Problems: Dependent on tax revenue, dependency ratio, causes a disincentive to work
• Progressive income taxes, inheritance tax and capital tax


  • Problems: tax evasion, corruption, low income countries
• State provision of essential goods and services

  • Problem: Uses tax revenue (opportunity cost)