Chapter 21: Poverty, Inequality, and Discrimination

Good curves of taxation

90 degrees and bad is goes up and then flattens out

Gini coefficient

A/A+B

Why does income inequality exist

Barriers Skills Education Connection Luck

Perfectly unequal

Look at graph

Compensating wage differentials

Paying extra money for jobs that are more dangerous or unpleasant or more arduous.

Relative definition of poverty vs. absolute definition

We can define poverty two ways. The more optimistic definition uses an absolute concept of poverty: If you fall short of a certain minimum standard of living, you are poor; once you pass this standard, you are no longer poor. The more pessimistic definition relies on a relative concept of poverty: The poor are those who fall too far behind the average income.

Existing programs like NIT

Food stamps and earned income tax credit

Is income inequality getting better or worse

The distribution of income in the United States has grown substantially more unequal since about 1980. The United States has more income inequality than most other industrialized countries.

NIT vs. the progressive personal income tax

The income tax is for income equality whereas the NIT is to reduce poverty

In 1929

There was a lot of income inequality and rich people saved and less economic growth and people bought on credit. WWII and new deal redistribute wealth.

Affirmative action

Affirmative action refers to active efforts to locate and hire members of underrepresented groups.

What does the curve of national income look like

Bell curve with national income on the Y and percent equality on the X there is no perfect number on the gini curve.

Causes of income inequality

Differences in ability, luck, differences in work intensity, risk taking, schooling and other types of training, compensating wage differentials, work experience, and inherited wealth.

Economic discrimination

Economic discrimination occurs when equivalent factors of production receive different payments for equal contributions to output.

What are ways to decrease poverty

Education, welfare, food stamps, and transfers in kind.

There is a trade off between

Efficiency and equality. Measures taken to increase the amount of economic equality normally reduce economic efficiency, that is, reduce society's total output. So, in trying to divide the pie more equally, we may inadvertently reduce its size.

The market is good at ____ and bad at ______

Efficiency, equality.

Describe the US tax system based on how progressive it and some of its taxes are

Most experts agree that the many other taxes in the U.S. system—including sales taxes, payroll taxes, and property taxes—are decidedly regressive as a group. On balance, the evidence seems to suggest that The U.S. tax system as a whole is only slightly progressive.

Tax eate

On the income but comes out of the guarantee

NIT guarantee

Tax rate*break even level of income

Total income

Tax rate*income subtract from guarantee add new guarantee to earnings for total income

Two ways to fix income inequality

Taxation and economic growth

Earned income tax credit

The Earned Income Tax Credit (EITC) is a program in which the federal government gives out grants to certain families proportional to their earnings.

The larger the GC

The more unequal income is

What is the negative income tax?

The negative income tax (NIT) is a program where people below a certain income range would receive a payment from the government. This is a solution to the disincentive to work. A particular NIT plan is defined by picking two numbers: a minimum income level below which no family is allowed to fall (the "guarantee") and a rate at which benefits are "taxed away" as income rises. Guarantee = Tax rate × Break-even level. But this means if you have a medium level break even it would give incentives past where you need it. It is better than other methods.

Poverty line

The poverty line is an amount of income below which a family is considered "poor." It changes annually usually.