Chapter 20 – Income distribution and poverty

Income distribution in a market economy Determined by markets Affected by initial endowments

Estate tax (“death tax”)

Lorenz curve

Differences in income inequality

Poverty programs Cash transfers In-kind transfers

Trends in income distribution Inequality decreased until 1980s Inequality rose from 1980s until

mid 1990s Inequality declined in mid- and

late-1990s Inequality rose since 2000.

Tax structures Progressive – T/Y rises as Y rises Proportional – T/Y is constant Regressive – T/Y declines as Y rises(T = taxes, Y = income)