Microeconomics Income inequality

Distortion of incentives

Results from government policies to redistribute income to attain equity

negative income tax

a tax system that collects revenue from high-income households and gives subsidies to low-income households, i.e. EITC

poverty line

an absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty

welfare

government programs that supplement the incomes of the needy, i.e. TANF, SSI

Increase in demand for skilled labor

explains rise in income inequality in US from 1970-2008

Invisible Hand

acts to allocate resources efficiently but not necessarily ensure fairness

Measurements of income equality uses

lifetime income not annual

Distribution of income

tends to be more equal in rich nations than poor

maximin criterion

the claim that the government should aim to maximize the well-being of the worst-off person in society

poverty rate

the percentage of the population whose family income falls below an absolute level called the poverty line

liberalism

the political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind a "veil of ignorance"

utilitarianism

the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society

libertarianism

the political philosophy according to which the government should punish crimes and enforce voluntary agreements, but not redistribute income

life cycle

the regular pattern of income variation over a person's life

in-kind transfers

transfers to the poor given in the form of goods and services rather than cash i.e. food stamps, medicaid