101 lecture income inequality

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Income Inequality

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101 lecture income inequality

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

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