econ 212 ch 20
Why elderly not as broke as children in families?
- Social security system supports elderly quite well - they saved for 401k - Food stamps provide assistance to needy families
Libertarianism
- gov should punish crimes and enforce voluntary agreements but NOT redistribute income - Should NOT take from some and give to others An ideology that cherishes individual liberty and insists on minimal government, promoting a free market economy, a noninterventionist foreign policy, and an absence of regulation in moral, economic, and social life.
Reading Notes : Taxes
- gov used to collect 7% now 30% - US collects 2/3 tax - Average US pays 11k taxes
Explanation for the slight widening of the income distribution in the United States since 1970?
- increase of international trade and tech (decreased demand for unskilled workers, and increased demand for skilled)
Utilitarianism
- redistributing income from rich to poor. - Maximize total utility of everyone in society. taking dollar from rich reduces their utility less than the gain it generates for the poor. - John stuart Mill and Dmitri
Notes
- top 5% earn more than bottom 40% - top 5th earn 49% off all income - top quintile earn 13x more than bottom - Poverty Line : set at 3x cost of providing adequate diet
Which of the following represents a problem in measuring inequality?
A normal life-cycle pattern causes inequality in the income distribution but may not reflect inequality in living standards.
Which of the following statements is characteristic of utilitarianism?
An extra dollar of income provides higher marginal utility to a poor person than to a rich person.
Which of the following does not explain the rise in income inequality in the United States from 1970 to 2017? a. Changes in technology. b. An increase in minimum wages. c. A reduction in the demand for unskilled labor. d. Increased international trade with low-wage countries.
An increase in minimum wages.
leaky bucket
Basicially, when u put dollars in this bucket, only some of it reaches teh welfare recipents as intended. actual benefits dont equal the whole dollar spent. Factors like : admin costs of redistributing income, ppl who lie abt income, and elastic labor supply. Utilitarianism
Antipoverty programs effect
Can result in Higher effective marginal tax rates. meaning fams can be worse off if they earned more through working.
If gov gave families a 10k check instead of giving them Medicaid, they'd spend the money on health insurance. (T/F) Yes/No value in kind transfers?
False. Unlikely theyd spend that much on health care. Would purchase other things they need. So, should NOT value in-kind transfers at price the gov pays for them to determine poverty rates. (bc maybe not worth as much as the cost to those fams)
Suppose that Family A borrows money when its car breaks down and saves money when the wife receives a holiday bonus from her employer. Suppose that Family B borrows money to buy elaborate birthday presents for the children and spends the husband's holiday bonus on a vacation to Florida. Which of the following is correct?
Family A's spending habits suggest that it bases its purchasing decisions on permanent income rather than transitory income. Family B's spending habits suggest that it bases its purchasing decisions on transitory income rather than permanent income.
transitory income
Income that people do not expect to persist into the future; current income minus normal incomer
Redistribution of Income greatest to least
Liberalism, U, Libertarianism
The government is proposing switching from a progressive tax system in which families pay 15% of the first $50,000 earned, 25% of the next $50,000 earned, and 35% of any income over $100,000 to a tax system in which every family pays 20% of their income minus $20,000. Whos in favor?
Liberals, because of the maximin criterion
Jill earns more than Bob, and she came by her income fairly and honestly. Which of the following political philosophies would argue against the redistribution of income from Jill to Bob?
Libertarianism
Liberalism
Max welfare for poor The government should choose policies deemed to be just, as evaluated by an impartial observer behind a "veil of ignorance" john rawls
Which of the following is not an example of in-kind transfers?
The Earned Income Tax Credit Examples : food stamps, medicaid, housing vouchers
Both share idea that total income of society is a shared resource that can be redistributed among ppl to achieve a social goal.
Utilitarianism and Liberalism U : max overall utility L : max welfare for poor
negative income tax
a tax system that collects revenue from high-income households and gives subsidies to low-income households - generates smaller disincentive to work than most alternative anti poverty programs
Which of the following statements about poverty rates is not true?
a. The elderly are more likely than average to live in poverty. Yes true : female lead fams are 5x likely to live in poverty, children are more likely than average to live in poverty, blacks and hispanics 2x likely as white
In the United States, the top 5 percent of the income distribution earnsIn the United States, the top 5 percent of the income distribution earns
a. more than the bottom 40 percent of the income distribution.
Since 1935, the income distribution in the United States has
a. narrowed slightly from 1935 to 1970 and then widened slightly from 1970 to today.
The poverty line is set at
a. three times the cost of providing an adequate diet.
In the United States, the top quintile of the income distribution earns
around 13x the bottom quintle
The greatest advantage of a negative income tax is that it
b. generates a smaller disincentive to work than most alternative antipoverty programs.
To which of the following policies is the Earned Income Tax Credit most closely related?
b. negative income tax
If people can borrow and lend to perfectly smooth out their lifetime living standards, then
b. permanent income is a good measure of the distribution of living standards.
An increase in the minimum wage will cause a relatively large increase in unemployment among
b. unskilled workers if the demand for labor is relatively elastic.
Current antipoverty programs discourage work because
benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is receiving benefits
Compared to other countries, the income distribution in the United States is
c. a little more unequal than most.
Permanent income is
c. a person's normal, or average, income.
Temporary Assistance for Needy Families
c. may lead to the breakup of families because fathers may not be in the home if single mothers are receiving benefits.
Rank utilitarianism, liberalism, and libertarianism in sequence from the political philosophy that would redistribute income the greatest to the one that would redistribute income the least.
d. liberalism, utilitarianism, libertarianism
Utilitarianism suggests that the government should choose policies that maximize the total utility of everyone in society by
d. redistributing income from rich to poor because, due to the diminishing marginal utility of income, taking a dollar from the rich reduces their utility by less than the gain in utility generated by giving a dollar to the poor.
A disadvantage associated with in-kind transfers to reduce poverty is that they
do not allow poor families to make purchases based on their preferences.
Earned Income Tax Credit (EITC)
does not discourage ppl from working, is less distortionary than other anti poverty programs, and applies only to working poor. 1975 and expanded in 1990
The maximin criterion suggested by Rawls' theory of justice argues that the government should aim to
e. maximize the well-being of the worst-off person in society.
Because in-kind transfers and tax credits for the poor are not accounted for in standard measures of income distribution, the standard measures of income distribution
exaggerates the inequality of living standards.
If the government increases its support for education, it could increase economic mobility
from generation to generation
social insurance
government programs intended to protect families against economic hardship
Critics of raising the minimum wage argue that minimum-wage laws are
imprecise in their ability to help the working poor.
why has income inequality in the United States has increased since 1970
increase in international trade with low wage countries and changes in technology. Both reduce demand for unskilled workers.
Permanent incomes
more equally distributed than annual incomes.
Utilitarianism...
suggests that government policies should strive to maximize the sum of all three individuals' utility.
Comparing the US to other countries ranked by inequality,
the US has a less equal distribution of income than some countries, but a more equal distribution of income than others.
maximin criterion
the claim that the government should aim to maximize the well-being of the worst-off person in society
in-kind transfers
transfers to the poor given in the form of goods and services rather than cash - can be inefficient - hard to gauge inequality
Supplemental Security Income (SSI) is a type of
welfare payment
