Income distribution

Essay by hgf1972 May 2004

download word file, 8 pages 3.0


Economics have long sought to understand the links between economic growth and income distribution. According to Kuznets' hypothesis: A country's income distribution would first widen, then stabilise, and finally narrow with the economy development.

However, if the necessary result of the economy development is the income distribution's worsening, what's the value of the growth? It is meaningless for most people become poorer and only a small number of rich people become richer as a result of growth. Efforts must be made to avoid the worsening of income distribution with the economy growth.

Lucy enough, recent research has shown that there are no systematic relationship between growth and the worsening of income distribution and it's possible to achieve both growth and equal income distribution by effective policies.

This paper will focus on the following areas:


Lorenz curve and Gini coefficient.

The Kuznets Hypothesis

Empirical evidence for the inverted-U hypothesis:

Policy can pursue both objectives


1. Inequality

Inequality is a matter of income distribution--that is, how the total income of a country is shared out among individuals and families. Inequality can be observed between different income groups and different countries, particularly, the advanced and less advanced of the world.

2. Lorenz curve and Gini coefficient.

In order to measure inequality, two common methods are adopted: Lorenz curve and Gini coefficient.

2.1 Lorenz Curves

Lorenz curves are an effective way of showing inequality of income within and between countries. The curve illustrates the actual relationship between the percentage of income recipients and the percentage of income that they actually receive. The cumulative percentage of population is plotted along the horizontal axis. The cumulative percentage of income is plotted along the vertical axis(as shown in the following diagram).


The 45 degree line is called the line of absolute equality. It...