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i"tri#ution
!am"#e: $% income
1::4. D't' ,ro the ;orl! Develop ent 3eport 1:::-20005 p. 23:. /ere $e h've 'lre'!y #een given the nee!e! in,or 'tion. 1;e 'l"o h've "o e e6tr' in,or 'tion ,or the lo$e"t 'n! highe"t !ecile" o, the popul'tion 't the #otto o, the t'#le <thi" in,or 'tion help" roun! out the picture.2
Quintile % of Pop. % of Inc. Cummulative % of Inc. 0 10 20 40 60 80 90 100 0 1.5 4.8 10.5 16 23.5 28.2 45.2 0 1.5 4.8 15.3 31.3 54.8 71.8 100
1 2 3 4 5
ECO 315/Dr. Mitchell/Spring 2002 lecture4-poverty & inco e !i"tri#ution ;e plot the !'t' in the ,in'l colu n on the percent'ge o, the popul'tion. Connecting the
!ot" give" the curve you "ee in the gr'ph. =ue"tion0 >, inco e $ere !ivi!e! e-u'lly ' ong hou"ehol!"5 then $h't "h'pe $oul! the )oren* curve h've%
Gini Coefficient
?he +ini Coe,,icient 'i " to e'"ure the @!i"t'nceA #et$een thi" country." inco e !i"tri#ution 'n! ' tot'lly e-u'l !i"tri#ution o, inco e. ?he h'tche! 're' '#ove "ho$" thi" !i"t'nce ,or the BS. =ue"tion0 ;h't i" the tot'l 're' un!er the "tr'ight line e-u'l to% )et x e-u'l the 're' o, the h'tche! region '#ove.
ECO 315/Dr. Mitchell/Spring 2002 lecture4-poverty & inco e !i"tri#ution Cor ul' ,or the +ini coe,,icient D Ex/50F100 =ue"tion"0 >, there i" per,ect inco e e-u'lity5 then $h't v'lue $ill the +ini coe,,icient h've% Suppo"e one ,' ily h'" 'll the inco e. ?hen $h't v'lue $ill the +ini coe,,icient h've%
?he +ini coe,,icient in the ;orl! G'n4 !'t' ,'ll" #et$een 0.20 'n! 0.55. 1&ote0 ?he ;G i" u"ing ' 0-100 "c'le in"te'! o, 0-1.2 See ?'#le" 5.2 & 5.3 on tr'n"p'rencie".
&bso#ute Poverty
Absolute poverty: the !egree to $hich people 're un'#le to "ecure the nece""itie" o, living. International Poverty Line0 H1 per !'y in 999 !oll'r". PPP ( Purchasing Power Parity)0 the i!e' th't there i" ' !i,,erent co"t o, living in !i,,erent countrie" #eyon! "i ply converting currencie" 't the 'r4et e6ch'nge r'te. 999 e6ch'nge r'te" t'4e the 'r4et e6ch'nge r'te and the co"t o, living into 'ccount. PPP dollars: ( ,igure th't h'" #een converte! u"ing the 999 e6ch'nge r'te5 "o th't ,igure" 'roun! the $orl! c'n #e co p're! !irectly to the purch'"ing po$er th't ' BS !oll'r h'" in the BS. See ?'#le 5.5 on tr'n"p'rency.
Po#icy ("tions
Correct #actor Price Distortions
>n !eveloping countrie" $e o,ten "ee th't $'ge r'te" 're 'rti,ici'lly high5 !ue to union" 'n!/or ini u $'ge l'$". )i4e$i"e5 the price o, phy"ic'l c'pit'l i" o,ten 'rti,ici'lly lo$ !ue to v'riou" policie" "uch '"0 inve"t ent incentive"5 t'6 'llo$'nce"5 "u#"i!i*e! intere"t r'te"5 overv'lue! e6ch'nge r'te"5 'n! lo$ t'ri,," on c'pit'l goo!" i port. Correcting the"e !i"tortion" 'y help the !i"tri#ution o, inco e 1!o you "ee ho$%2
$edistribution of %ssets
)'n! re,or 1 u"t inclu!e 'cce"" to other input" "uch '" cre!it2 Other re!i"tri#ution o, '""et" '" gro$th occur" E!uc'tion '" re!i"tri#ution
Pro&ressive Ta'es
&ote th't in "pite o, ' progre""ive "y"te in l'$5 in pr'ctice the "y"te 'y #e regre""ive i, there i" ore t'6 ev'"ion #y the rich. &ee! to re,or t'6 collection "y"te ".