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AP Economics. Mr. Bernstein Module 78: Income Distribution and Income Inequality January 8, 2014. AP Economics Mr. Bernstein. Poverty First arbitrary definition attempted in 1960’s Rises and falls with changes in economy No trend line – poverty higher in 2009 than 1973

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ap economics

AP Economics

Mr. Bernstein

Module 78:

Income Distribution and Income Inequality

January 8, 2014

ap economics mr bernstein
AP EconomicsMr. Bernstein

Poverty

  • First arbitrary definition attempted in 1960’s
  • Rises and falls with changes in economy
  • No trend line – poverty higher in 2009 than 1973
  • Not spread evenly across population demographics
  • Caused by anything creating a barrier to full-time job with decent pay
    • Education or training opportunities
    • Language
    • Discrimination
    • Bad Luck
  • Consequences for Health, Learning
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AP EconomicsMr. Bernstein

Income Inequality: Quintile Analysis

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AP EconomicsMr. Bernstein

Income Inequality: Gini Coefficient

  • Developed by CorradoGini in 1912
  • Gini Coefficient = 0, income is distributed equally, as in column 3
  • Gini Coefficient = 1, all income goes to one person (!)
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AP EconomicsMr. Bernstein

Income Inequality: Gini Coefficient

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AP EconomicsMr. Bernstein

Income Inequality: Gini Coefficient

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AP EconomicsMr. Bernstein

Economic Insecurity and Antipoverty Programs

  • To avoid families falling into poverty, welfare state provides temporary assistance programs
  • Means-tested programs
    • Criteria determines eligibility for benefits (ie income)
    • Social Security, Unemployment Insurance
  • Progressive Taxes + Welfare System
    • Redistributes income (reduces Gini Coefficient)
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AP EconomicsMr. Bernstein

The Debate Over Income Redistribution

  • Is this a legitimate role of the government?
  • Higher taxes to fund programs create DWL
  • Means-tested programs and “The Notch”
    • Example: Single Mom earns $5,000 in benefits if income < $15,000 and zero benefits if >$15,000
    • If she currently earns $14,900, will she work overtime and earn an additional $1,000?
    • Phase-out levels reduce Notch effects
  • Are disincentives larger than consequences of poverty?
    • Economics can help calculate numbers but it often winds up being a question of values and philosophy (Normative)
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