Inequality and risk preference

Analysis of Empirical Research on the Factors Influencing the Change of Income Inequality

Quantitative Aspects of the Economic Growth of Nations: VIII. Distribution of Income by Size

While volumes have been written on the individual topics of military economics and income distribution, only scant attention has been paid to the potential impact of military spending on the distribution of a nation's income. The traditional academic focus on the military has centered on issues such as spending impacts on employment, income and inflation, or on whether industrialized countries, in particular the United States, have become too dependent upon the military for their economic well being. Above and beyond these concerns, there is evidence that military spending is associated with increasing income inequality. Among other reasons this association exists because of pay differentials in civilian vs. military related work (including direct armed forces activities as well as military contract work), because of fewer opportunities for women and minorities among military contractors, which then exacerbates existing gender and race pay differentials, and, lastly, because of the profitability of military related contracts relative to commercial production. The relationship between military spending and the distribution of income is examined for the United States during the post-Vietnam War period using time-series data. Empirical estimates reveal that military spending is indeed associated with increasing income inequality, after controlling for macro-economic variables such as taxes, economic growth, interest rates, inflation and non-military spending. The results are generally robust to alternative definitions of both the military spending and income distribution measures.

This paper first documents the evolution of the cross-sectional income and consumption distribution in the US in the past 25 years. Using data from the Consumer Expenditure Survey we find that a rising income inequality has not been accompanied by a corresponding rise in consumption inequality.\nOver the period from 1972 to 1998 the standard deviation of the log of after-tax labor income has increased by 20% while the standard deviation of log consumption has increased less than 2%. Furthermore income inequality has increased both between and within education groups while consumption inequality has increased between education groups but mildly declined within groups.\nWe then argue that these empirical findings are consistent with the hypothesis that an increase in income volatility has been an important cause of the increase in income inequality, but at the same time has lead to an endogenous development of credit markets, allowing households to better smooth their consumption against idiosyncratic income fluctuations. We develop a consumption model in which the sharing of income risk is limited by imperfect enforcement of credit contracts and in which the development of financial markets depends on the volatility of the individual income process. This model is shown to be quantitatively consistent with the joint evolution of income and consumption inequality in US, while other commonly used consumption models are not.

In 2004 the United Nations University World Institute for Development Economics Research (UNU-WIDER) embarked on a large-scale research project on the ‘Impact of Globalization on the World’s Poor’ co-directed by Machiko Nissanke and Erik Thorbecke. The first conference was essentially conceptual in nature, meant to understand better the various mechanisms and channels through which globalization affects the poor either directly or indirectly. The other three conferences focused on each of the major regions of the developing world: Asia, Africa and Latin America. Theobjectivesofthisintroductionarethreefold:first,toreviewbrieflyhow the forces of globalization influence poverty in general; second, to describe and discuss the main transmission channels and mechanisms; and third to analyze the impact of globalization on Africa and present an overview of the six Africa case studies included in this issue. 1. The Impact of Globalization on the World’s Poor Globalization provides a strong potential for a major reduction in poverty in the developing world because it creates an environment conducive to fastereconomicgrowthandtransmissionofknowledge. 1 However,structural factors and policies within the world economy and national economies have impeded the full transmission of the benefits of the various channels of globalization for poverty reduction. In particular sub-Saharan Africa (SSA) hasbeenrelativelylessaffectedbytheforcesofglobalizationthanotherparts of the world. World income distribution continues to be very unequal and many poor countries particularly in Africa are stagnating. Moreover, there is much empirical evidence that openness contributes to more within-country

Among the central issues in policy making are poverty alleviation and increasing income distribution. This paper measures the impact of economic growth on income inequality and poverty alleviation, namely whether income inequality becomes trade-off for poverty alleviation in 35 Central Java regencies. The paper uses fixed effect model by weighting cross section weights. The results show that economic growth increases income inequality. Furthermore, economic growth alleviates poverty and increases income inequality, but the effect is smaller than the reduction in poverty. Therefore, the increased income inequality is not a trade off to poverty alleviation and the economic growth is effective to alleviate poverty. Keywords: Economic growth, income inequality, poverty alleviation

Over the past decades, there have been significant changes in the functional income distribution. The decreasing wage share in national income, the causes and consequences of this phenomenon have become the subject of both research and political debate. Over the past decade, research in the most developed countries has shown that economic growth has been influenced by wage share rather than a profit share. The decline in the wage share in countries’ incomes may have been the cause of slowing economic growth or a sluggish post- crisis recovery (Blecker, 2016). The decline in the wage share is one of the key aspects of changes in income change, which also includes an increase in personal income inequality (Hein, 2015). Although much research has been done on changes in the distribution of personal income, the problem of the functional income distribution has not been sufficiently explored.
 The concepts of income distribution and functional income distribution seem similar at first glance, but this is not the case. The distribution of income is described as the income earned in a country’s economy distributed among the total population. This indicator is usually calculated at the household level (i.e. the total income of all household members is calculated), taking into account the number of household members and their age. Meanwhile, the functional distribution of income is described as the distribution of national income between the two factors of production – labour and capital. This means that income is distributed between employees and capital owners. Theoretically, it is stated that 2/3 of income goes to labour and 1/3 to capital. The impact of changes in wage and profit shares on aggregate demand is quite complex and depends, among other things, on the country specification, data sources and coverage, the measurement of different variables and the statistical methods used in the surveys. Bhaduri and Marglin (1990) analyzed the impact of changes in the functional distribution of income on consumption, investment, exports, and imports. The essence of the model is that wage share has a dual effect on the economy, at the same time it is business expenditures and the main factor of private household consumption (Storm andNaastepad, 2017). As the effects of changes in the functional distribution of income impact the components of aggregate demand in national income differently, the ultimate impact on aggregate demand is not clear. If the decline in the wage share has a positive effect on aggregate demand, it is considered to be profit- led aggregate demand, if it has a negative effect, demand is wage-led.
 In the macroeconomic field, aggregate demand is understood as the total amount of final products and services produced in a country over a period of time that buyers can and want to purchase at a certain price level. Gross demand consists of 4 components: consumption, investment, exports and imports. This is the demand for the country’s gross domestic product (Basu and Gautham, 2019). By way of analysis, the main determinants of aggregate demand included in the researches can be identified. The most frequently included factors in the investment function are income, wage, profit, less frequently used factors are inequality of personal income and marginal propensity of employees to consume. In investment functions, the main factors are income, profit and wage income. Factors such as capacity utilization and business expectations are less frequently included in investment functions. The rest of the world’s income and export prices are usually included factors in the export function. However, less frequently included factors in the export function are housing assets. On the other hand, import prices and unit labor costs are the most commonly influenced factors in the import function. Less commonly used factors in the import function are investment costs.
 Based on the Bhaduri and Marglin model, a number of studies have been conducted to assess the impact on consumption, investment, import, export and to determine whether the economy is wage-led or profit-led (Naastepad and Storm, 2006; Hein and Vogel, 2008; Stockhammer and Ederer, 2007; Stockhammer and Stehrer, 2011; Onaran and Galanis, 2014). In their research, the authors make a clear distinction in which countries aggregate demand is profit-led and which is wage-led. In empirical studies, economic growth is stimulated either by exports or domestic demand. In the post-war period, most studies found wage-led domestic demand in almost all countries, but net exports can turn a particular economy into a profit-led one. Some researchers have studied the impact of changes in the functional income distribution on aggregate demand in individual countries, while others in groups of countries. In most of the countries (UK, Italy, Netherlands, Austria, Norway, Sweden, Denmark) analyzed in the empirical studies, domestic and aggregate demand was wage-led. Also, economic growth in most countries was driven more by domestic demand than by export. One of the worst examples of increasing economic growth is noticeable in Spain. The aim was to do this through internal devaluation – by reducing unit labor costs. However, the increase in net exports was smaller than the decrease in domestic demand, which had a negative impact on economic growth.

The effects of types of banks on financial access and income inequality in a heterogeneous sample: A quantile regression analysis

The paper empirically examines the effects of trade liberalisation on income inequality in China and the South Asian Association for Regional Cooperation countries. Panel data analysis is conducted for the period of 1973 to 2012. The results show that liberal trade policies have increased income inequality in these countries. These results are robust to alternative liberalisation measures. The control variables used have differing effects on income distribution. Per capita income has an increasing effect on income inequality, while education, financial development, financial openness, democracy, and government size are shown to reduce income inequality. These outcomes can be expected to have important policy implications for the use of trade liberalisation in these countries.

Purpose The aim of this paper is to shed more light on the foreign direct investment (FDI) - income inequality nexus in the post-communist EU countries. Special attention is paid to the emergence of a new meritocratic elite related to foreign capital that tends to replace the old elite inherited from the transition period at the top end of the income distribution. Design/methodology/approach The macroeconomic model of the relationship between income inequality and FDI is estimated by using the generalized method of moments (GMM) technique. The sample includes 10 post-communist EU member states during the period 1993 to 2020. Findings The results suggest that the concentration of the highest level of human capital in foreign-owned enterprises, in the institutional environment under which foreign-owned enterprises are less numerous and pay a higher wage than domestic ones, contributes to the change of the effect of FDI and human capital on income distribution from an initial decrease to a later increase in income inequality. Originality/value This paper adds to the existing literature by exploring the distributive impacts of sectoral reallocation of FDI inflows from manufacturing to service sectors from the perspective of heterodox economics. It specifically examines how this shift has facilitated the emergence of a new meritocratic elite associated with foreign capital, which in turn diminishes the overall anti-inequality effect of FDI in the post-communist new EU countries.

The allocation and distribution of a country's income in the 4.0 era need to be given special attention so that it can be allocated efficiently by each individual. The efficiency of allocation and distribution of income in a capitalist economic system has an impact on income inequality in society which can lead to conflict and also creates poverty. But in achieving this prosperity, it is as if there is no government intervention. This study aims to explore how the allocation and distribution of state income are seen from an Islamic economic perspective and also to compare the capitalist distribution system with the Islamic distribution system in the 4.0 era. The research method used is library research which originates from books, journals, the internet, and other relevant sources. The results of the study show that the allocation and distribution of state income from an Islamic economic point of view is an economic concept that has the concept of equal distribution of wealth or income for the community, applicable in Indonesia, which will produce prosperity for the community. The comparison of the capitalist distribution system is based on absolute ownership of the factors of production so that the main goal is to make a profit. As much as possible appears to ignore moral and social values. The Islamic economic distribution system in the era of disruption upholds moral and social values because, in addition to achieving good profitability, Islam also teaches problems in economic activities. With Islamic economic equality, it is hoped that it can reduce the gap in economic inequality to realize prosperity. Therefore, sharia distribution can be carried out by prioritizing Islamic business ethics which is implemented through the concept of Rahmatan lil 'Alamin in the economy. Likewise, in Indonesia, where the majority of the population is Muslim, special attention is needed so that it can implement the allocation and distribution of state income through the concepts of Zakat, Infak, Shadaqah, and Wakaf adapted to the times.

Three limitations in standard method measurement of income redistribution are considered: that redistribution is seen as a matter of global rather than marginal effects, that structural effects on the distribution of factor income are not accounted for, and that cross-section and life-cycle effects are conflated. Evidence from recent research is introduced. It is argued that standard method results are reasonably robust in spite of limitations in the methodology. A positive association in advanced industrial companies between tax/transfer policy and income inequality is argued to be a firmly established conclusion. This suggests both that if government wants to modify income inequality it has a tool for so doing in tax and transfer policy, and that if it should want to reshape transfers or taxes for other reasons it must expect there to be distributional consequences. Czech Sociological Review, 1996, Vol. 4, (No. 1: 19-28) Comparative research on income distribution in advanced industrial societies over the last ten to fifteen years has produced at least two findings which can now be characterised as firmly established. The first is that there are considerable differences between nations in the distribution of income. This has been demonstrated above all in the Luxembourg Income Study [Smeeding et al. 1990]. Before the co-ordinated LIS estimates there was uncertainty about this and the tendency was to emphasise similarity more than difference. It has also been shown in more limited comparisons, for example of the Nordic countries [Ringen 1986, 1991; Gustafsson and Uusitalo 1990a, 1990b; Ringen and Uusitalo 1992] and of Australia and New Zealand [Saunders, Stott and Hobbs 1991]. The second finding is that there have been considerable and systematic shifts within countries in income inequality over relatively short periods of time. Here I refer to studies by Jenkins [1991], Coulter et al. [1993], Atkinson [1993], and Goodman and Webb [1994] for Britain, to the works cited above for Finland, Sweden, Australia and New Zealand, to Ringen [1993] on the composition of household income in Norway, to Fritzell [1993] for a five-country comparison, and to official poverty estimates in Britain and the United States. Previously, the tendency was to regard income inequality as relatively stable over time and such changes as were observed as mainly fluctuations around a stable underlying trend. Through these findings, income inequality has become established as a sensitive indicator of social life. Whereas established conclusions have been reached on the descriptive facts, there is less agreement about what the relevant underlying pressures are, in particular: to what degree are transfer and tax policies a factor in accounting for variations in income inequality? The question is of obvious policy relevance, but there is also a more general relevance. There are strong theories, in particular in sociological writing, of an inherent *) Direct all correspondence to Stein Ringen, Department of Applied Social Studies and Social Research, University of Oxford, Wellington Square, Oxford 0X1 2ER, United Kingdom. 19 This content downloaded from 157.55.39.4 on Fri, 09 Sep 2016 04:42:03 UTC All use subject to http://about.jstor.org/terms Czech Sociological Review, IV, (1/1996) tendency to social stability through mechanisms in which society strikes back against attempts to impose an arbitrary order on it. One such mechanism may be the ability of those in privilege to confound attempts to undermine their relative advantage. It is suggested that social inequality sits too deep in the fabric of society to be reachable by cautious after-the-fact redistributional measures [cf. eg. Goldthorpe et al. 1980]. The implication is that the choice for society is between drastic market regulations or laissezfaire, with no middle ground for reformist and piecemeal strategies. I am not concerned here with the question of what the distribution of income should be. Nor do I consider such major controversies as equality vs. liberty vs. efficiency. I am concerned only with the power of transfer and tax policies for influencing income inequality, if society should want to move towards more equality than is generated in the market. This needs to be known for considerations of what government can do, but knowing this is not necessarily of much consequence for considerations of what government should do. It is the potential I am concerned with, and the paper does not offer a comprehensive review of actual country experiences. A recent review of this kind is available in [Atkinson et al. 1995]. Obviously, it is the normative distribution between persons or households that is considered, and not macro-distributions, for example between labour and capital.

In this paper, I study the effect that switching to a voucher system of educational finance has on the distribution of income. The model is calibrated to U.S. data, and simulated for two different forms of education finance: a voucher system and a completely private system of schools. All voucher policies considered result in welfare gains and reductions in income inequality. A private system entails a welfare loss and an increase in income inequality. The more important the peer group is to future income, the smaller the welfare gains and reductions in inequality associated with voucher systems, and the greater the welfare cost and increase in inequality associated with a private system.

This paper reviews income distribution in developing (and transition) countries in recent decades. On average, before-tax income distribution in developing countries is less unequal than in industrial countries. However, unlike industrial countries, developing countries in general have not been able to use tax and transfer policies effectively to reduce income inequality. During the 1980s and 1990s, many developing countries experienced an increase in income inequality. The government health care and primary and secondary education programs in developing countries are not well targeted, but their incidence tends to be progressive.

Rising U.S. income inequality, gender and individual self-rated health, 1972–2004