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101 lecture income inequality

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Income Inequality

Income Inequality


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  • 1. MicroeconomicsIncome Inequality Rich and Poor Rich and Poor
  • 2. Rich and Poor Relative SubjectiveMeasurement limitations
  • 3. What would you rather be?Rich in poor country orPoor in a rich country
  • 4. Who is richer?
  • 5. 2013 vs. 1953Cell Phone EntertainmentInternet CarHousingFoodAir Conditioner OpportunitiesJet TravelMedicine
  • 6. Income must be createdbefore it can be distributed Entrepreneurs use capital to create income
  • 7. Capital Financial - Money Physical - ThingsIntellectual - Ideas Human - People
  • 8. Market is Efficient May not be fairWho defines fair?
  • 9. Fairness is not an objectively determined conceptMilton Friedman (1912 - 2006)
  • 10. FairnessTwo Definitions
  • 11. Redistributive FairnessIt is fair to equalize rewards.Inequality is inherently unfair.
  • 12. Meritocratic Fairness Fairness means matching reward to merit.Forced equality is inherently unfair
  • 13. The worst form ofinequality is to try to make unequal things equal. – Aristotle – Aristotle – Aristotle
  • 14. THE REAL QUESTION is not whether fairness matters it does... but which definition is correct for public policy.
  • 15. Quiz1. What is Redistributive Fairness?2. What is Meritocratic Fairness?
  • 16. Government can make income more equal Distorts incentives Alters behaviorLess efficient allocation
  • 17. How much inequality?What can government do? How to help the poor How to help the poor How to help the poor
  • 18. Quintile Line up by income One-FifthDivide into five groups
  • 19. Income Inequality by Quintile MENAPercent ofIncome Perfect Equality
  • 20. Poverty LineA level of income set by the government belowwhich is deemed to be in poverty
  • 21. Poverty Rate The percentage of thepopulation living below the poverty line
  • 22. Percent Below Poverty LineEgypt 20Gaza 70 Iran 18 Iraq 25Jordan 14Syria 12UAE 19Yemen 45
  • 23. The Income Lifecycle Peak at 50 Earning + Level Spending Varies$0 - Go to Work Retire Born Age Die
  • 24. Consumption Gap Top 20% to Bottom 20%Unadjusted Income 15 x After Taxes 14 x Consumption 4x Household Size 2x
  • 25. What percent ofmillionaires inherited their wealth? 20% Inherited 80% Earned