Econ+102+lecture+21%2C+3-29-11+-+Inequality copy

Econ+102+lecture+21%2C+3-29-11+-+Inequality copy - Required...

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Lecture 20: Income Inequality Econ 102 Winter 2012 3/29/2012 1 Required reading : Gottheil Micro Ch 18 – Inequality (on CTools)
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Outline 1. The measurement of income inequality 2. The data of inequality 3. Possible “solutions”: re-distributive taxing & spending 4. Arguments in favor of income inequality 5. Inequalities in inequality: who is most likely to be hurt by inequality in the distribution of income? 3/29/2012 2
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Within-economy inequality We’ve finished our “short run” section of the class! Fluctuations and how we can, if at all, counter them Before we go on to the last section of the class, on international interactions, it’s worth it to pause and consider: Our models all act as if when we intervene – tax, spend, etc – we have an effect “on the economy” As if there is one agent whose well-being we are manipulating. But, of course, there are millions of us. 3/29/2012 3
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Within-economy inequality For example, we saw that deflation tends to hurt the poor (borrowers), help the rich (lenders) Other examples to consider: a. As modeled, income tax rate t was always constant (e.g., t = 0.15) But in fact, for some t is high, for some, low. Why? What ‘s the effect? b. Growth increases the size of the economy – it makes a bigger “pie”. But as we grow, does the way that the pie is “sliced” change? Do we like that change? c. Spending is often on things like public education or public transit, which help the poor more than the 3/29/2012 4
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Within-economy inequality In some sense, the study of growth was the study of inter-national income differences. Let’s look at intra - national differences. Not unconnected: growth implies the amount of stuff to distribute grows: the “ability to give everybody more” rises May want to ask the same questions within economies: 1. Given an economy’s GDP, how is this value distributed? 2. Are intra-economy differences in income shrinking or growing? 3/29/2012 5
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Thought experiment: take all the people in the economy and line them up according to income The Lorenz curve answers (graphically) the question: what fraction of total income does the poorest X% of households earn? Here, total income = $775
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This note was uploaded on 02/10/2012 for the course ECON 102 taught by Professor Rossana during the Winter '08 term at University of Michigan.

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Econ+102+lecture+21%2C+3-29-11+-+Inequality copy - Required...

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