1 / 27

Questions/ Comments

Questions/ Comments . Midterm Answer Key Q3 Evaluations Office Hours: Monday and Wednesday 4:30PM-5:30PM. CHAPTER 12. INCOME REDISTRIBUTION: CONCEPTUAL ISSUES. The Distribution of Income Among Households. Income Distribution. Important? Economists vs. Policy Makers. Who is Poor?.

kami
Download Presentation

Questions/ Comments

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Questions/ Comments • Midterm Answer Key • Q3 • Evaluations • Office Hours: Monday and Wednesday • 4:30PM-5:30PM

  2. CHAPTER 12 INCOME REDISTRIBUTION: CONCEPTUAL ISSUES

  3. The Distribution of Income Among Households

  4. Income Distribution • Important? • Economists vs. Policy Makers

  5. Who is Poor?

  6. Measuring Poverty • Poverty Line • A fixed level of real income considered enough to provide a minimally adequate living. • $18,400 in 2003 • Cost for Basket of Goods (Adjusted for Inflation) • Basket Does Not Change! • New Basket in 2000 • 120% Increase

  7. Poverty Rate (1960-2004)

  8. Interpreting the Distributional Data • Taxes Ignored • Annual Income • Cyclical • Consumption Data • Units of Observation • Households • Census = Cash Receipts • Ignores in-kind transfers • Decrease 12.7% to 8.3%

  9. Nonindividualistic Views • Income Distribution is Personal Preference • Incomes distributed equally as matter of principle • Commodity Egalitarianism • In-Kind Transfers

  10. Expenditure Incidence • Relative Price Effects • More Expensive? • Public Goods Problem • Values • Valuing In-Kind Transfers • $1 Spent by Gov = $1 to BC?

  11. In-kind Transfers H 420 Other goods per month E3 340 A F U 300 E1 260 B D 20 60 150 210 Pounds of cheese per month

  12. In-kind Transfers H 420 Other goods per month A F 300 E5 168 E4 136 B D 82 126 150 210 Pounds of cheese per month

  13. Reasons for In-Kind Transfers • Commodity Egalitarianism • Reduce Welfare Fraud • Lying for Cash • Political Factors • Help Specific Industries

  14. 0 Simple Utilitarianism • Utilitarian Social Welfare Function:W = F(U1, U2, ,,,, Un) • “Promote Greatest Good for Greatest Number” • Additive Social Welfare FunctionW = U1 + U2 + … + Un • Assume • Individuals have identical utility functions that depend only on their incomes • Utility functions exhibit diminishing marginal utility of income • Total amount of income is fixed

  15. 0 Implications for Income Inequality Paul’s marginal utility Peter’s marginal utility e f d c MUPeter MUPaul 0 0’ b a I* Paul’s income Peter’s income

  16. 0 Implications for Income Inequality Paul’s marginal utility Peter’s marginal utility e f d c MUPeter MUPaul 0 0’ b a I* Paul’s income Peter’s income

  17. 0 Implications for Income Inequality Paul’s marginal utility Peter’s marginal utility e f d c MUPeter MUPaul 0 0’ b a I* Paul’s income Peter’s income

  18. 0 Implications for Income Inequality Paul’s marginal utility Peter’s marginal utility e f d c MUPeter MUPaul 0 0’ b a I* Paul’s income Peter’s income

  19. Further Evaluation • Perfect Equality is Best • Examine Assumptions

  20. Further Evaluation • Examine Assumptions • Individuals have identical utility functions that depend only on their incomes • Your Utility? • My Utility vs. Your Utility? • Ethics

  21. Further Evaluation • Examine Assumptions • Utility functions exhibit diminishing marginal utility of income • True for Goods • True for Income?

  22. Further Evaluation • Examine Assumptions • Total amount of income is fixed • Redistribution Distorts

  23. The Maximin Criterion • John Rawls Social Welfare Function W = Minimum(U1, U2, …, Un) • Original position • “behind the veil of ignorance” • Maximin Criterion • No inequality acceptable unless it works to the advantage of the least well off.

  24. The Maximin Criterion • Critique • Original Position • Risk Adverse? • Strange Outcomes • Help Poor • Benefit Rich • Hurt Everybody In Between

  25. Pareto Efficient Income Redistribution • Pareto Efficient Redistribution • a reallocation of income that increases (or does not decrease) the utility of all consumers. • Possible? • Utility Function • Ui = F(X1, X2, …, Xn, U1, U2, …, Ui-1, Ui+1, …, Um) • Charity > Reduced Consumption

  26. Pareto Efficient Income Redistribution • Government Reduces Cost of Redistribution • Income Distribution as a Public Good • Social Safety Net • Social Stability

  27. Other Considerations • Processes versus Outcomes • Process Fair? • Outcome Fair • Mobility • Corruption

More Related