Name: Shrushti Todankar (MBA Finance)
INCOME INEQUALITY
LITERATURE REVIEW
1) Informal Transfers
Deducting private transfer payments from disposable income increases inequality, but effects differ by the position of donor and receiving households in the distribution, by urban or rural location and by age of household members. We conclude that considering the role of private financial transfers is crucial to income inequality analysis. (Ref: Yixia Cai & Martin Evans, 2018.)
2) Redistributive Effort
We show the degree of bias in typical measures of post-government income distribution. In Switzerland and the U.S., for instance, post-government poverty rates climb by 3-4 percentage points once households’ private medical expenses are subtracted from income. Future assessments of governments’ redistributive effect should uniformly account for the distributional impact of their health-care financing policies.(Ref: Katherine Baird, 2018.)
3) Challenging Income Inequality
The review concludes that there are many pathways to reducing inequality, from narrowing gaps in income generation opportunities to narrowing the potential for inequalities in human capital development before the inequalities emerge, smoothing consumption among the most deprived, and redistribution in favour of the poor. Many interventions are simultaneously associated with equalising outcomes, improved competition, and economic efficiency. Good interventions combining equality promotion and efficiency are possible in all settings and at different times; this includes interventions disproportionately benefiting the poorest in low-income countries during periods of crisis. Despite the significant increase in knowledge about equality interventions. (Ref: Jose Cuesta & Mario Negre & Ana Revenga & Maika Schmidt, 2018.)
4)Denmark and Germany, 1984-2003
This article analyses the effects on income inequality of an increased number of immigrants in Denmark and Germany for the 20- year period 1984-2003 and how the impact of the increased number of immigrants differs between the two countries. We find higher inequality for immigrants than natives in Denmark but vice versa for Germany. Over the period 1984-2003, this particular inequality gap has narrowed in both countries. At the same time, the contribution of immigrants to overall inequality has increased, primarily caused by increased between-group inequality. The share of immigrants in the population is more important for the change in overall inequality in Denmark than in Germany, while the opposite is the case for inequality among immigrants. (Ref: Mette Deding & M. Azhar Hussain & Vibeke Jakobsen & Stefanie Brodmann, 2010.)
5) Labour Share of National Income in the European Union
The results of an econometric test conducted in our study, based on a labour demand equation that was derived from the CES production function, confirm the hypothesis that technological progress negatively affected the labour share of income, everything else remaining constant. This finding has important implications for EU Member States, namely that some form of policy intervention would seem to be necessary, as technological progress could lead to a continuing fall in the share of labour income if left to its own devices.
6) Income Distribution in the US
An increase in the unemployment rate tends to be associated with an increase in inequality, as does an increase in the proportion of families headed by a single parent. An increase in the percentage of income in the jurisdiction that comes from transfer payments tends to be associated with a reduction in income inequality, as does an increase in the percentage of the jurisdiction’s economy in manufacturing. Jurisdictions that started with a higher level of inequality tended to have lower rates of inequality growth. Many of these jurisdictions had very low levels of high-school attainment at the beginning of the period but experienced relatively rapid increases in high-school attainment over the ensuing decades. (Ref: Charles L. Ballard & Paul L. Menchik & Lu Tan, 2013.)
7)Income Sorting
We find that changes in “income sorting” account for more than half of the increase in family income inequality in the United States over the last three decades. Furthermore, income sorting accounts for an even larger share of the growing gap between middle-income and low-income families. Our results demonstrate that understanding inequality of economic well-being requires going beyond labour earnings and other income sources to examine the composition and work behaviour of families. (Ref: Deborah Reed & Maria Cancian, 2012)
8)Threshold Effect on Developing countries
This study proposes a “threshold effect” to address this issue. We argue that when imports benefit a large portion of the population, a decrease in income inequality is more likely to occur within the country. We use a dynamic specification to estimate the impact of trade on within-country income inequality in a sample for low- and high-income, developing countries (LIDC and HIDC) over the period 1970-2009. We find that if the trade of manufactured goods is above (below) the threshold, income inequality will decrease (increase). (Ref: Fadi A. Fawaz & Masha Rahnamamoghadam, 2011).
9)Income Equality being Endogenous
Based on a system of equations estimation, the empirical results confirm the hypotheses that income inequality has a growth-dampening effect, that income inequality is endogenous to regional growth, and that the channels through which income inequality determines growth are adjustments at the regional level, such as migration and changes in employment and incomes. The results have numerous policy implications. The noted forces can be utilised as policy instruments to mitigate income inequality and its growth dampening effects, because a) as income inequality is endogenous, its equilibrium level can be internally determined within a regional growth process, b) since traditional income inequality mitigating policies have an indirect effect on overall regional growth, they may have unintended indirect effects on income inequality, and c) regional growth adjustment also equilibrates income inequality.(Ref: Yohannes G. Hailu & Mulugeta S. Kahsai & Tesfa G. Gebremedhin & Randall W. Jackson, 2011).
10) Economic Equalities on health (Europe)
The individual’s health status is measured by self assessment responses and by relatively objective measures of health. Country-level inequality measures are used after controlling for regional fixed effects. This implies that country level factors are the relevant approximations of individuals’ reference groups. The results suggest that income inequality harms not only the health of the least well off but also the health of all individuals regardless of their position in the income distribution. (Ref: Jean-Michel Etienne & Ali Skalli & Ioannis Theodossiou, 2011.)
11) Conclusion
Income inequality is important. That is the root of a lot of things. Wealth inequality, or the unequal distribution of wealth, is its main companion. The greater the economic inequality, which is extremely visible in many nations around the world, the less equitable the distribution. India’s Gini coefficient, which measures income distribution inequality, was 35.2 in 2011, placing it 95th out of 157 countries, according to the CIA World Factbook. Social mobility has declined as a result of social inequality. If social mobility is low in a society, no nation can advance.
REFERENCES.
Charles L. Ballard & Paul L. Menchik & Lu Tan, 2013. “The State(s) of Inequality: Changes in Income Distribution in the US States and the District of Columbia, 1976-2008,” Journal of Income Distribution, Ad libros publications inc., vol. 22(2), pages 25-59, June.
Deborah Reed & Maria Cancian, 2012. “Rising Family Income Inequality: The Importance of Sorting,” Journal of Income Distribution, Ad libros publications inc., vol. 21(2), pages 3-14, June.
Fadi A. Fawaz & Masha Rahnamamoghadam, 2011. “The Interaction between Income Inequality and Imports of Manufactured Goods: A Case for Developing Countries,” Journal of Income Distribution, Ad libros publications inc., vol. 20(3-4), pages 6-23, September.
Jean-Michel Etienne & Ali Skalli & Ioannis Theodossiou, 2011. “Do Economic Inequalities Harm Health? Evidence from Europe,” Journal of Income Distribution, Ad libros publications inc., vol. 20(3-4), pages 57-74, September.
Jose Cuesta & Mario Negre & Ana Revenga & Maika Schmidt, 2018. “Tackling Income Inequality: What Works and Why?,” Journal of Income Distribution, Ad libros publications inc., vol. 26(1), pages 1-48, March.
Katherine Baird, 2018. “Including Private Health Care Costs in Measuring Nations’ Redistributive Effort,” Journal of Income Distribution, Ad libros publications inc., vol. 26(2), pages 1-21, July.
Lino Briguglio & Melchior Vella, 2014. “Technological Advance and the Labour Share of National Income in the European Union,” Journal of Income Distribution, Ad libros publications inc., vol. 23(3), pages 35-58, November.
Mette Deding & M. Azhar Hussain & Vibeke Jakobsen & Stefanie Brodmann, 2010. “Immigration and Income Inequality: A Comparative Study of Denmark and Germany, 1984-2003,” Journal of Income Distribution, Ad libros publications inc., vol. 19(1), pages 48-74, March.
Yixia Cai & Martin Evans, 2018. “Informal Transfers in Comparisons of Income Distributions: Lessons from Rich and Middle-Income Countries,” Journal of Income Distribution, Ad libros publications inc., vol. 26(2), pages 1-20, July.
Yohannes G. Hailu & Mulugeta S. Kahsai & Tesfa G. Gebremedhin & Randall W. Jackson, 2011. “Is Income Inequality Endogenous In Regional Growth?,” Journal of Income Distribution, Ad libros publications inc., vol. 20(3-4), pages 43-56, September.