Studied by 7 peopleMeasuring wealth of a country though GDP per capita
Easy to calculate and communicate, high availability of data, data correlates with the characteristics of developed countries
Non-market activities
contribute to the national income, but not counted in GDP measurement
Monetary value of the shadow economy
money in circulation - the money that is used by consumed
Purchasing power parity
the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country
Lorenz curve
Cumulative percentage of households and the cumulative percentage of income, ordered from the poorest households to the richest households
Total equity on a lorenz curve
45 degree line
Lorenz curve explanation
Poorer households usually have a relatively low share of income
Gini coefficient word definition
measures the ratio of the area between the 45-degree income equality and the Lorenz cureve to the entire area under the 45 degree line of perfect income equality
0 on the gini coeefficient
perfect income equality1 o
1 on gini coefficient
all income is in hands of one householdi
Gini formula
A/(A+B)
Demographic dividend
Higher economic growth from a decline in country's birth and death rates (and subsequent change in the age structure of the population)
European relative poverty
Poverty line set at 60% of the median income
International poverty line
1.90
Relative poverty
Individuals are excluded from being able to take part in what are considered the normal, acceptable standards of living in a society
Big push theory
A country would need a big package of help, because firms will come to the country if the others do
What is seen as combating/reducing poverty
Increasing mean income/reducing inequality/economic growth
Drivers of poverty
Political conflict, natural disasters, corruptions
Counter-intuitive thing about gdp and natural disasters
They destroy existing wealth, but lead to huge amount of GDP growth
What absolute poverty does not inform about
it doesn't show the ability to participate in the society
Who is responsible for raising relative poverty
The rich
Equality of opportunity
Achieved if circumstances do not matter in the outcome (only effort)E
Ex-ante concept
Judged in the beginning, without effort
Equality of outcome
Doesn't make a distinction between the deserving and undeserving poor
Ex-post concept
judged after the action has been taken
Intergenerational earnings elasticity
fractions of relative income differences between all adults that is transmitted to their offspring
Interpreting intergenerational elasticity
Higher values indicate a higher persistence of earnings across generations
Components of income
Individual earnings, capital incomes, transfers, disposable income
disposable income
gross income - direct taxes
Level of concept of earnings
individual
Income level of concept
household
How household-based measures conceal the extent of the rise in inequality
Young adults returning to family nest during economic struggles
Household market income formula
Individual earnings + capital incomes + private transfers
Household gross income formula
Household market income + state transfers
Household equivalised disposable income
Household disposable income/n of equivalent adults
Equalisation definitions
adjusting total household incomes for differences in needs in terms of size and composition
Needs and household size
We assume that they rise less than proportionately with household size
Household extended(adjusted) income
Household equalized disposable income + value of public services
Gini comprehension visually
Further the two lines are from each other, the higher the gini coefficient
What does 90/10 ratio do
Compares the two extremes of the income distribution
90/50 income ratio
Compares how the middle class is doing compared to the riches
50/10 ratio meaning
Distribution of income among the relatively poor population
What action can be determined from the 90/10 ratio
How much income should be distributed to the poor
What can be determined from the 90/50 ratio
The distribution of the tax burden among the relatively rich population
What action can be determined from the 50/10 income ratio
To determine who is the relative poverty
Theories that link inequality to negative impacts on economic growth
Endogenous fiscal policy, human capital accumulation theory, lower aggregate demand
Endogenous fiscal policy
Inequality leads to political discontent, resulting in re-distributive policies that harm growth, political instability and unrest
Human capital accumulation theory
Poor people are not able to invest sufficiently in education, which leads to untapped potential for growth
Lower aggregate demand from stagnating/declining incomes of the poor couples with higher income shares of the rich
Rich people have lower propensity to consume and so may rather save than re-invest money
Theories that suggest that inequality is positively related to growth
Higher inequality makes people work harder, higher inequality fosters aggregate savinng
OECD study 2018
Strong negative link between inequality and growth, likely through the human capital accumulation channel
Higher inequality and well-being (Wilkinson and Pickett) (but just correlations)
More health and social problems: life expectancy, mental illness, drug use, obesity
Status anxiety
Inequality places people in a steep hierarchy that increases status competition and so stress
Why did inequality increase in countries of global north
Skill-biased technological changes, globalisation, financialization of core economies
Skill-biased technological change (SBTC) (inequality)
polarization in the labour market, with routine tasks being replaced by computers (squeezing of the middle class)
Stolper-Samuelson theorem
Rich countries export skill-intensive products and import low-sill products (has an impact on demand on wages)
Reasons for national differences
Changing pay norms, reduced role of trade unions, scaling back of the redistributive tax and transfer policy, capital and monopoly power
Why is there a reduced role of trade unions
Skilled workers no longer identify with unskilled workers, globalisation - threat to relocate business
capital and monopoly power (inequality explanation)
winner-takes-all markets - globalisation means bigger markets
CEO pay and performance
Little evidence that they are related
bottom 50% and emissions
Responsible for 12%
Note
Flashcard