Income redistribution: goals and methods. Income redistribution The negative side of income redistribution
Income redistribution is the use of taxation, government spending, and controls to change the distribution of real income.
Why is redistribution necessary?
1. Under certain assumptions about the social welfare function (additivity*; diminishing marginal utility with respect to income; individual utility functions are identical and make utility dependent only on the individual’s income), it reaches its maximum under conditions of complete equality. Therefore, any reduction in inequality caused by income redistribution leads to an increase in social welfare.
*Additivity is a property of quantities in relation to addition, consisting in the fact that the value of a quantity corresponding to the whole object is equal to the sum of the values of quantities corresponding to its parts.
2. The second argument in favor of income redistribution is the existence of a certain relationship between the level of social inequality and the rate of economic growth. On the one hand, the less intensive the redistribution processes are, the stronger the incentive for individuals to work productively, which manifests itself in the possibility of receiving high real incomes. In this sense, inequality is the price that society is forced to pay for an effective economic system and stable economic growth. However, too high a level of inequality leads, on the contrary, to a decrease in economic growth in the country
3. The problem of poverty. The poor segments of the population are characterized by a low level and quality of life, high mortality (including child mortality); a significant proportion of crimes are also committed by members of the poor population. In view of these considerations, as well as in accordance with the principles of social justice and generally accepted norms in a democratic state, poverty reduction is one of the goals of the state, the implementation of which is carried out through income redistribution policies.
The government carries out income redistribution in direct and indirect ways, including:
transfer payments, that is, benefits paid to low-income groups: dependents, disabled people, the elderly and the unemployed;
price regulation for socially important products;
indexing fixed income and transfer payments at a statutory inflation rate;
mandatory minimum wage as a wage base for all enterprises;
progressive taxation, in which the tax rate increases as nominal income increases.
Market failures and economic functions of the state in a market economy.
Market failure (market failure) is a situation in which the market does not cope with its functions, and either cannot provide the production of a good at all, or provides it in insufficient quantities. Also, market failure is often explained by contradiction, as the lack of the market’s ability to achieve Pareto efficiency.
The most common examples of market failures are public goods, such as healthcare, because... they either do not generate revenue at all, or revenue turns out to be much less than expenses. Therefore, producers of such goods are forced to either minimize their losses by reducing quality, or maximize revenue, for example, by raising prices for honey. services, which in one way or another are harmful to society. Market failures sometimes occur in other industries, where they are most often caused by externalities. Market failure occurs where there is no payment for an external effect, usually due to the lack of a market in which the product is sold. For example, when a factory can take water from a lake for free, while depriving fishermen of the opportunity to use it, i.e. the benefit moves from the category of unlimited to the category of economic (limited).
Market failures are usually considered the main reason for government. intervention in the economy. In addition, the goal of the state. regulation may be the solution to macroeconomic problems - fighting inflation, ensuring full employment, providing social services. justice, and others. State regulation can be carried out:
Direct control over price levels and market volumes - through the establishment of mandatory state prices or market quotas.
Through the use of financial instruments - taxes and subsidies
Some other methods
Product taxes (turnover tax, excise tax) - paid by the seller on each unit of goods sold (the amount is either fixed or as a percentage of the price). The introduction of a tax leads to a decrease in the equilibrium volume of the market, an increase in the price paid by buyers and a decrease in the price received by sellers. The degree of influence depends on the slope of the supply and demand lines. The distribution of the tax also depends on the relationship between the slope of demand and supply, as well as on whether the tax amount is a fixed amount or a percentage.
Subsidies are “taxes in reverse,” but are much more often received by producers. They lead to an increase in market volume by increasing the price received by sellers and decreasing the price paid by buyers.
Fixed prices - the establishment leads to either a shortage (if set below the equilibrium) or a surplus (if set above the equilibrium) of the goods. Often used to maintain constant prices for agricultural products.
1. Subsidies
One possible way to eliminate market failures is to turn external effects into internal ones (internalization) - for example, combining fishermen and a factory on the lake into one enterprise. Naturally, such actions are possible only with the intervention of the state and are its task. Another possible way is to force a company to pay for losses caused to another company, which will also force them to minimize the damage caused.
In addition, by flexible application of various taxes and subsidies, and in rare cases even fixed prices, the state must keep markets from shortages and surpluses (since they negatively affect producers), ensure the production of public goods and ensure that harm from monopolies was minimized, and utility was maximized.
How all this works can be seen using the example of corrective subsidies - payments to the creators of positive externalities. Its goal is to equalize marginal private and marginal social utility. The subsidy will lead to an increase in demand for the good, which will lead to an increase in production and price, i.e. to shift the market equilibrium to the required point.
Why is redistribution necessary?
Looking at the problem of inequality from different angles, we can identify several arguments in favor of reducing it and, consequently, redistributing income in society. Speaking about inequality from the perspective of welfare economics, it should be noted the possible relationship between social inequality and the amount of social welfare. Under certain assumptions about the social welfare function (additivity; diminishing marginal utility with respect to income; individual utility functions are identical and make utility dependent only on the individual’s income), it reaches its maximum under conditions of complete equality (see Lecture 20). Therefore, any reduction in inequality caused by income redistribution leads to an increase in social welfare. This redistribution of income fully corresponds to the implementation of the maximin principle, which forms the basis of the social welfare function of J. Rawls. Under other assumptions (non-additivity, differences in individual utility functions), increasing welfare may require income inequality. redistribution income transfer
The second argument in favor of income redistribution in society is of a macroeconomic nature - the existence of a certain relationship between the level of social inequality and the rate of economic growth. In fact, this argument is somewhat controversial and is used by both supporters and opponents of redistribution processes. On the one hand, the less intensive the redistribution processes are, the stronger the incentive for individuals to work productively, which manifests itself in the possibility of them receiving high real incomes. In this sense, inequality is the price that society is forced to pay for an effective economic system and stable economic growth.
However, too high a level of inequality leads, on the contrary, to a decrease in economic growth in the country (i.e., there is a relationship between inequality and the rate of economic growth in the form of a convex upward parabola - with an increase in inequality, the rate of economic growth increases only up to a certain level, from which as inequality further increases, economic growth rates decline). Therefore, it is advisable to regulate inequality through redistribution policies and prevent its level from becoming too high. The third reason is connected, perhaps, with the most striking manifestation of inequality - the problem of poverty. Poverty exists in any country, regardless of the standard of living achieved in it. The poor are people who do not have the opportunity to live in accordance with the minimum necessary standards adopted in a given country. As a result, they are also deprived of the opportunity to fully enjoy all the rights and privileges guaranteed to citizens of this country. The poor segments of the population are characterized by a low level and quality of life, high mortality (including child mortality); a significant proportion of crimes are also committed by members of the poor population. In view of these considerations, as well as in accordance with the principles of social justice and generally accepted norms in a democratic state, poverty reduction is one of the goals of the state, the implementation of which is carried out through income redistribution policies. Mechanisms for income redistribution are quite diverse, and the use of one or another mechanism depends on the existing level of inequality in the country, its structure, causes, as well as the specific goals and objectives of the policy to reduce inequality. Therefore, before setting the task of income redistribution, you need to understand what inequality is and how it can be assessed (measured).
Distribution of real profits through differentiated taxation, a system of transfer payments and government intervention in market mechanisms.
This state policy pursues the following goals:
- reducing income inequality and increasing overall well-being;
- acceleration of economic growth in the country;
- reducing the number of poor people.
Methods of income redistribution
The process of income redistribution can be carried out:- direct method. Funds received as a result of taxation are accumulated in the state budget for further transfer payments;
- indirect method. These include charity, preferential taxes, free medical care or education, government price control, etc.
- transfer payments - benefits for the low-income part of the population: disabled people, students, the unemployed, dependents, the elderly;
- managing prices for products with a high degree of social importance;
- the use of indexation of income and benefits as a means of protection against inflation by linking it to the consumer price index;
- mandatory establishment of a minimum wage;
- progressive taxation: increasing the effective tax rate as the tax base grows.
The negative side of income redistribution
Such government policy may not only not lead to the desired effect, but also have a negative impact:- the process of transferring income from the wealthy to the poor can be done in a “leaky bucket”, which will lead to a deterioration in the welfare of the rich, but will not improve the situation of the poor. It is imperative to take into account the efficiency factor, since government costs for implementing redistribution programs may to a large extent not be justified;
- the occurrence of unexpected side effects. This necessitates taking into account not only the immediate benefits of social programs, but also the long-term perspective. For example, the large size and duration of payment of unemployment benefits or those in special need demotivates the population to work. This has a negative impact not only on the country’s economy, but also on the social atmosphere in society.
Excessive taxation can undermine market incentives and deeply distort the market mechanism. This will contribute to a slowdown in economic growth, an acceleration in inflation rates, and even a deterioration in the financial situation of low-income groups of the population, for the sake of which the policy of income redistribution was pursued.
Looking at the problem of inequality from different angles, we can identify several arguments in favor of reducing it and, consequently, redistributing income in society. Speaking about inequality from the perspective of welfare economics, it should be noted the possible relationship between social inequality and the amount of social welfare. Under certain assumptions about the social welfare function (additivity; diminishing marginal utility with respect to income; individual utility functions are identical and make utility dependent only on the individual’s income), it reaches its maximum under conditions of complete equality (see Lecture 20). Therefore, any reduction in inequality caused by income redistribution leads to an increase in social welfare. This redistribution of income fully corresponds to the implementation of the maximin principle, which forms the basis of the social welfare function of J. Rawls. Under other assumptions (non-additivity, differences in individual utility functions), increasing welfare may require income inequality.
The second argument in favor of income redistribution in society is of a macroeconomic nature - the existence of a certain relationship between the level of social inequality and the rate of economic growth. In fact, this argument is somewhat controversial and is used by both supporters and opponents of redistribution processes. On the one hand, the less intensive the redistribution processes are, the stronger the incentive for individuals to work productively, which manifests itself in the possibility of them receiving high real incomes. In this sense, inequality is the price that society is forced to pay for an effective economic system and stable economic growth.
However, too high a level of inequality leads, on the contrary, to a decrease in economic growth in the country (i.e., there is a relationship between inequality and the rate of economic growth in the form of a convex upward parabola - with an increase in inequality, the rate of economic growth increases only up to a certain level, from which as inequality further increases, economic growth rates decline). Therefore, it is advisable to regulate inequality through redistribution policies and prevent its level from becoming too high. The third reason is connected, perhaps, with the most striking manifestation of inequality - the problem of poverty. Poverty exists in any country, regardless of the standard of living achieved in it. The poor are people who do not have the opportunity to live in accordance with the minimum necessary standards adopted in a given country. As a result, they are also deprived of the opportunity to fully enjoy all the rights and privileges guaranteed to citizens of this country. The poor segments of the population are characterized by a low level and quality of life, high mortality (including child mortality); a significant proportion of crimes are also committed by members of the poor population. In view of these considerations, as well as in accordance with the principles of social justice and generally accepted norms in a democratic state, poverty reduction is one of the goals of the state, the implementation of which is carried out through income redistribution policies. Mechanisms for income redistribution are quite diverse, and the use of one or another mechanism depends on the existing level of inequality in the country, its structure, causes, as well as the specific goals and objectives of the policy to reduce inequality. Therefore, before setting the task of income redistribution, you need to understand what inequality is and how it can be assessed (measured).
SECTION 2. Inequality and its measurement
One of the serious problems that constantly worries society in the modern world is the inequality of people even in the most democratic and economically developed countries.
The concept of inequality is extremely complex and capacious. In lecture 20, we already touched on one aspect of this problem, considering income inequality.
There is no doubt, however, that the concept of social inequality is much broader and is not limited to the inequality of members of society in terms of the absolute and relative amount of income they receive. Economists are primarily interested in the uneven distribution of social wealth or resources available to the citizens of a country.
When we talk about social inequality, we mean, first of all, the presence of rich and poor people in society. However, when classifying a person as “rich,” we are guided not only and not so much by the amount of income he receives, but by the level of his wealth.
There is no doubt that both concepts - income and wealth - determine a person’s purchasing power.
However, while income measures how much purchasing power has increased over a given period, wealth measures the amount of purchasing power at a given fixed moment.
That is, in stock-flow terms, wealth is a stock and income is a flow. For example, if at the beginning of the year you deposited 10 thousand rubles in the bank. at 20% per annum, this means that your wealth was 10 thousand at the beginning of the year, and at the end - 12 thousand rubles.
At the same time, you received an income of 2 thousand rubles for the year.
Individual wealth can take three main forms:
1) “physical” wealth - land, house or apartment, car, household appliances, furniture, works of art and jewelry and other consumer goods;
2) financial wealth - stocks, bonds, bank deposits, cash, checks, bills, etc.;
3) human capital - wealth embodied in the person himself, created as a result of upbringing, education and experience (i.e. acquired), as well as received from nature (talent, memory, reaction, physical strength, etc.).
In its most general form, the level of social inequality is determined by differences in the volume and structure of individual wealth, as well as in the ways it is obtained and used. For example, for some people, the main source of physical and financial wealth is the accumulation of income in previous periods of time, respectively. but with restrictions in the volume and structure of consumption of goods and services. Others inherit these forms of individual wealth.
Or another example - wealthy members of society gain access to such goods and services, for example in the field of education, the consumption of which leads to an increase in their individual wealth in the form of human capital.
Each of the three types of wealth can serve as a source of certain income for its owner. “Physical” wealth brings us income in kind - for example, we watch TV shows, listen to music, wash clothes or wash dishes using household appliances. At the same time, it can also be a source of cash income - if we decide to rent out a plot of land or an apartment or use a car to transport passengers. Financial wealth also provides cash income - interest or dividends. But the main source of income for most people is the wealth that everyone has - human capital.
The income generated by human capital comes in various forms. When a person works, he receives a salary and, possibly, other - non-monetary - benefits, such as satisfaction from interesting creative work, communication with colleagues, etc. In the hours free from hired work, he enjoys leisure time or works on his farm , for example, growing roses in the garden or cucumbers in the vegetable garden.
Various statistics that characterize the forms of individual wealth listed above can be used to quantify inequality.
The most appropriate source of information would be the wealth distribution series of the population (or households). However, its statistical assessment is quite difficult to obtain. Almost the only source of information from which appropriate distribution series can be obtained is data from specially organized sample surveys of the population and households: in essence, in the process of these surveys, respondents must in some way estimate all their assets and debt obligations. Their difference (net assets) will be the wealth of the unit in question (household). Obviously, such surveys are carried out quite rarely, so most researchers use a much more accessible source of information to assess inequality - the series of population distribution by level of average per capita total monetary income.
The total income of each person consists of many, very diverse components, and not every one of them can be represented in monetary form. In general, total income is defined as the sum of:
Y F = Y M + Y N,
where Y F is the total income of the individual; Y M - cash income received from all possible sources (salary, interest and dividends, business income, rental income, etc.); Y N - income received in non-monetary form (satisfaction from work, use of physical capital and enjoyment of leisure).
At given prices, total income is nothing more than a measure of the capabilities of each person to consume various goods (both goods and services, and free time). In the language familiar to economists, this is nothing more than a “generalized” budget constraint, with the help of which it is quite natural to measure inequality in the distribution of resources between different people: after all, if everyone’s preferences were identical, actual consumption would differ only due to unequal budget constraints .
A similar theoretical approach is expressed in the famous definition of Simons: “Individual income can be defined as the algebraic sum of (1) realized consumption (in its market valuation) and (2) the change in the volume of disposable wealth at the beginning and at the end of the period.” Income, therefore, can increase even if actual consumption decreases - this is the choice of the individual. Income increases if potential consumption increases.
Simons' definition, according to economists, is important because it includes many types of income that are typically not captured by traditional statistics, such as the following.
1. Non-monetary benefits received from work. Sometimes they can be expressed in market prices (for example, a trip to a holiday home paid for by an enterprise). In some cases, however, it is difficult to obtain a monetary estimate of non-monetary benefits. An example would be a business trip, which is difficult to unambiguously define as “pure” work, disguised leisure, or a mixture of one and the other. In the same way, it is impossible to give a market assessment of a friendly environment in the workplace, relationships with colleagues, or satisfaction from interesting work.
2. Own products. Goods and services produced for oneself in one's free time have a market price. For example, you can pay for washing windows or childcare, laundry or apartment renovations, or you can do it all yourself. In any case, these services or goods are realized consumption and are therefore included in total income.
3. Imputed rent. Valuation of “services” received by a person from durable goods owned by him. First of all, this means living in your own house (apartment) - otherwise you would have to pay monthly rent. In the same way, other durable items (car, refrigerator, furniture) can be bought and used “for free”, or they can be rented.
Thus, these “services” can be valued at market (alternative) prices.
4. The acquisition or loss of a portion of wealth, as defined by Simons, should also be included in total income (with a plus or minus sign, respectively).
However, it is clear that Simons' definition, which is very reasonable from a theoretical point of view, turns out to be inapplicable in practice. Since we cannot evaluate in monetary terms satisfaction from work and leisure, as well as many other non-monetary benefits, we have to focus on monetary income and use this indicator to assess the inequality of people in a particular country (region, city).
At the same time, it is useful for economists to remember that indicators of differentiation of monetary incomes that are “convenient” for calculations give only a very approximate idea of the inequality in the distribution of total individual income and, especially, social wealth. Researchers also face certain problems when assessing monetary incomes themselves. The first question is: how to define the population unit and the observation unit? On the one hand, we want to estimate the income inequality of individuals. On the other hand, people live in families, the total (total) income of which is used by all their members. In economic statistics, the average per capita cash income of a family is usually used as the characteristic being studied. However, in this case, the question remains open: how is income actually distributed within the family, do all its members really receive equally, or is there “intra-family” inequality, which is thus not captured by statistics?
Another question: what period to choose for assessing income? The problem arises due to the fact that income, as a rule, arrives unevenly. Many types of work in the economy are seasonal in nature and, accordingly, are characterized by seasonal earnings.
Capital returns also tend to be uneven. The Russian economy today is characterized by changes in income differentiation due to non-payment of wages: the same families move from medium- or high-income groups to low-income groups, and back. The most suitable indicator for these purposes is average annual income.
The third problem is differences in price levels between regions, especially characteristic of countries with a large territory and insufficiently developed market relations.
For example, in today's Russia, experts estimate the interregional spread in the cost of living to be 4-5 times. This means that incomes of, say, 1000 rubles cannot be considered equal. per month received by residents of Vladivostok and Lipetsk. In general, economic inequality is determined by two components: inequality between the average income characteristics of the population of individual regions and differentiation of the population within each region. Interregional inequality must therefore be assessed taking into account regional differences in price levels - the results in this case turn out to be very different from the indicators of differentiation of nominal monetary incomes.
Finally, the fourth problem is the quality of static data obtained during budgetary studies of families and households. Families who have voluntarily agreed to provide state statistics bodies with information on their income and expenses and their structure are, as a rule, low- and medium-income families. The least affluent families, consisting of pensioners, refugees, internally displaced persons, as well as conscripts and a number of other categories of the poorest population, are outside the budget sample, as well as the highest income strata of the population. As a result, a family budget survey characterizes the level and differentiation of officially received nominal incomes of 95-00 million people, or 65-68% of the Russian population.
In this regard, state statistics bodies carry out calculations, or additional estimates, of the income distribution of the population in order to extend it to the entire population, taking into account as much as possible the number of the least and most affluent segments of the population. Since 1993, Russia has been reassessing another important indicator that is used in calculating differentiation indicators - average per capita income. Currently, this additional assessment amounts to about 20% of the average per capita income (income determined from data obtained from various sources. Its calculation is based on the value of retail turnover (which, in turn, is calculated based on the volume of trade in the unorganized market), information on other expenses population (for example, in 1997, 17.5 million passenger cars were owned by Russian citizens; in the same year, 4.5 million foreign tourist packages were sold) and the increase in cash and savings of the population.
Measuring inequality in rows of population distribution by income can be done using ordinal statistics and their ratios, as well as other indicators characterizing the differentiation of population income (we discussed these characteristics in detail in Lecture 20). However, their use is associated with certain restrictions.
First, virtually none of these characteristics, as such, provide an idea of the extent (let alone the dynamics) of inequality. In order to assess inequality using any indicator, a certain basis of comparison or at least one more value of this indicator is necessary. As such a base, you can use the value of the corresponding indicator at some points in time in the past, in another country, region, etc. Some indicators of the size of inequality (for example, the Gini coefficient) are based on comparing the actual value of the indicator with its values corresponding to situations of complete social equality and complete social inequality. There is a certain flaw in this approach because both situations are hypothetical and in reality some level of inequality in society is necessary.
Secondly, comparisons of inequality indicators must be carried out under other equal conditions in which the units of observation are located. If, for example, monetary indicators are used to study the dynamics of inequality in a country or region, inflation should be taken into account when comparing them; similarly, when comparatively studying inequality in different countries or regions, different costs of living and purchasing power of currencies should be taken into account. One of the indicators linking social inequality and social welfare is the Atkinson index, which will be discussed at the end of the section.
However, even if we imagine that the differentiation of monetary incomes is assessed strictly, this indicator cannot be considered an adequate reflection of inequality in society.
In fact, two individuals with different income levels may turn out to be “equal”, and vice versa, two people with the same income may be “unequal”. There are several reasons for this.
Firstly, as mentioned above, in addition to monetary income, people receive income in non-monetary form (job satisfaction, leisure, etc.). Their tastes (preferences) may be different. If we talk about inequality in terms of utility, then a person with a low income can receive greater satisfaction from extended leisure time, since he works a little, and rest is more important to him than material goods.
On the contrary, the one who values money more (that is, the goods and services that can thus be purchased) voluntarily reduces his leisure time, since he values it lower. In this case, both can achieve a higher level of utility: one by reducing income, the other by increasing it.
Second, differences in income may be due to age differences. If an experienced 40-year-old worker earns twice as much as an unskilled 20-year-old worker, there is no inequality. The older one received half as much 20 years ago, when he was just starting his working career, and the younger one, having gained experience and qualifications, will also double his earnings in the future. In this case, we are dealing with differences in income caused by life cycle effects, or natural inequality. A number of studies are devoted to the problem of isolating natural inequality inherent in any society and associated with heterogeneity in the age of its members from quantitative measures of general inequality. For example, M. Paglin showed that after isolating the effect of natural inequality, the Gini coefficient for US households decreased by 38% in 1972.
Thirdly, if we base our assessment of well-being on utility, then for the same family a decrease in per capita income may be accompanied by an increase in utility.
For example, the birth of a desired child reduces the family's per capita income, but at the same time increases utility, so that the family can ultimately maintain the same standard of living.
In addition, the same monetary income does not guarantee equality even with identical preferences. The fact is that countries with insufficiently developed market relations are characterized by inequality in access to certain benefits. If two people have the same monetary income, but one of them lives in a city apartment with all amenities and a telephone, and the other lives in a village house with a well in the yard, then we can hardly talk about equality here. Equality of nominal incomes in this case is accompanied, as A. Atkinson and J. Micklerite write, by “a difference in living standards.”
And finally, with the same monetary income, two families can receive different amounts of transfers in kind (for example, healthcare, education, etc.), which may be due to the family or its individual members belonging to a certain socio-demographic group. As a result, with equal monetary incomes, there is inequality of potential consumption opportunities (according to Simons’ definition).
That is why it can be argued that indicators of differentiation of the average per capita monetary income of families as a whole cannot serve as adequate indicators of inequality in society. At the same time, they are widely used in statistics in many countries of the world, as well as by international organizations in calculating general indicators of the level of economic and (or) social development achieved by a country when making cross-country comparisons.
Let us turn again to the statement that a certain level of social inequality is inherent in any society. However, even if its level is equal, inequality may become a social problem in one country, but not in another. Inequality becomes a social problem if the absolute and relative sizes of low-income groups of the population are large, that is, if a sufficiently large layer of poor people appears in society.
Various There is an exact definition of poverty and uniform criteria for determining whether an individual is classified as a poor population or not in poverty. In the literature on poverty, it is common to distinguish between the concepts of absolute and relative poverty.
To determine absolute poverty, the minimum income required to meet the basic needs necessary for the physical survival of an individual is calculated. All individuals with income below this minimum income are considered poor. Absolute poverty does not depend on a particular country or society, since its definition assumes that the minimum needs of all individuals are the same.
In a relative sense, the poor can be considered those people who cannot afford the acquisition and consumption of goods and services accepted in a given society as the minimum necessary standard of living. Obviously, for countries with different standards of living, this standard will be different, and with the same absolute amount of income, a person can be classified as poor in a developed country, for example in Sweden, and fall into the category of rich in a country with a low standard of living, for example in Chad.
In Russia, the official scale of poverty is the number of people with incomes below the subsistence level (for the population as a whole and differentiation for individual social groups). The subsistence level is understood as the limit of income that ensures consumption at the minimum acceptable level. The subsistence level takes into account food costs (taking into account the required calorie content and nutritional value), costs for necessary non-food goods and services, taxes and other mandatory payments that low-income families must make. In practice, its calculation is based on the cost of a set of 25 basic food products, which is determined monthly (and during periods of high inflation - weekly).
You can get a more detailed description of the size of poverty and identify its causes and structure using indicators that characterize how far the income of the poor population is from the poverty line or how large the share of the extremely poor population is in the total number of poor people. Here are some indicators that are used for these purposes in Russian statistics:
Income deficit is the ratio of the total amount of income of the population that is short of the subsistence level to the total amount of cash income of the population, expressed as a percentage;
Extreme poverty - the number of families in which the average per capita income at the time of the survey is no more than half the subsistence level;
Permanent poverty is the number of families in which the average per capita income was below the subsistence level during the year preceding the time of the survey.
The psychological aspects of the concept of poverty are closely related to households’ subjective assessments of belonging to poor families and deprivations (for example, lack of money to purchase certain food products, services, durable goods, lack of quality housing, etc.). These criteria, as a rule, are directly related to the wealth of households and allow the poverty level to be assessed through wealth rather than income (we have already mentioned the disadvantages of the latter for measuring inequality). In addition, they take into account intangible factors that characterize a household’s membership in a particular social class. A special measure of inequality associated with the social welfare function was proposed in 1970. British economist A. Atkinson and in modern economic literature is called the Atkinson index. The construction of the Atkinson index is based on the following assumptions.
1. The utility of income of each of the n members of society is described by the function:
The functions described here are characterized by diminishing marginal utility; The elasticity of marginal utility with respect to income is constant and equal to -e.
2. The social welfare function is the sum of individual utilities:
The Atkinson index is defined as follows:
where Ý is the arithmetic average of income:
Let's look at some basic properties of the Atkinson index. Equality (4) shows that equivalent income from a statistical point of view is a power average of 1 - e (for e = 1 - geometric average). When e = 0, the power mean coincides with the arithmetic mean. The general property of power averages (provided that the individual values of the averaged quantity are not the same) is that the smaller the exponent, the smaller the average. But if the individual values are the same, then any average value coincides with the individual value, and, therefore, all averages are equal to each other. Thus, if all members of society received equal incomes, then the equality Y e = Ý would be fulfilled, but due to individual differences, the equivalent income is less than the arithmetic average.
Equivalent income characterizes the minimum level of average income (and, consequently, the total income of all members of society), which would allow achieving the same level of well-being that is achieved with the existing average income and with existing inequality. The gap between Ý and Y e is larger, firstly, the greater the income differentiation, and secondly, the greater the parameter e, which plays the role of a measure of society’s rejection of income inequality. As e tends to infinity, the equivalent income tends to the minimum existing in a given society, which can be characterized as an absolute rejection of inequality. The Atkinson index is thus a relative (as a share of total income) expression of the price that society pays for the existing level of social inequality.
Let us explain what has been said with examples. Let the society consist of three members with incomes of 1, 10 and 100 units; the arithmetic average income is Ý = (1 + 10 + 100)/3 = 37. For e = 0.5 we have:
and Atkinson index I A = 1 - 22.29 / 37 = 0.398.
For e = 1 we obtain Y e = (1·10·100) 1/3 = 10; I A = 1 - 10/37 = 0.729. For e = 2:
If e → ∞, then Y e → 1; the limiting value of the Atkinson index is 0.972.
The differences in income in the examples given were quite significant.
If we consider an example with less differentiation, putting individual incomes equal to 26, 35 and 51 (with the same arithmetic mean of 37), we get the following results:
e = 0.5, Y e = 36.35, I A = 0.0177,
e = 1, Y e = 35.70, I A = 0.0351,
e = 2, Y e = 34.47, I A = 0.0684.
The limiting values for e → ∞ are Y e = 26, I A = 0.297. The advantage of the Atkinson index compared to other methods of measuring inequality is the fact that the problem of choosing a social welfare function in this index is reduced to setting the value of the parameter e. However, this is also the disadvantage of the Atkinson index, because it is unambiguous (and especially formalized ) no solution to this problem can be found. Therefore, when calculating the Atkinson index, researchers have at their disposal only some considerations of a general economic nature regarding the parameter e and its interpretation. In table Table 1 presents data on the distribution of the population of the Russian Federation by level of average per capita monetary income in 1994 and 1995. According to these distribution series, the average income was 194.98 thousand rubles. in 1994 and 489.685 thousand rubles. in 1995. In table. Table 2 shows the Atkinson index values calculated from these series for various values of the parameter e for 1994 and 1995. For each of the given values of e, the Atkinson index is higher in 1994. This means that the price for the existing inequality in society was higher in 1994 than in 1995, primarily due to greater income inequality of the population (which is confirmed by the values of the coefficient Jeanie over the years).
For example, at e = 1.5, the benefit that could be obtained from an increase in social welfare with an even distribution of income is equivalent to an increase in income of 0.355, or 35.5%, in 1994 and 0.281, or 28.1%, in 1995. Of course, the data the conclusions are correct for a given social welfare function (3).
Table 1. Distribution of the population of the Russian Federation by average per capita monetary income*
| 1994 | 1995 | ||
| income interval, thousand rubles. | income interval, thousand rubles. | share of the population with donated income in the total population, % | |
| Up to 60 | 10.5 | 40.1-100.0 | 2.0 |
| 60.1-120 | 27.2 | 100.1-150.0 | 5.0 |
| 120.1-180.0 | 21.6 | 150,1-200.0 | 7.5 |
| 180.1-240.0 | 14.2 | 200.1-250.0 | 8.5 |
| 240.1-300.0 | 9.0 | 250.1-300.0 | 8.7 |
| 300.1-360.0 | 5.7 | 300.1-350.0 | 8.2 |
| 360.1-420.0 | 3.7 | 350.1-400.0 | 7.5 |
| 420.1-480.0 | 2.5 | 400.1-450.0 | 6.8 |
| 480.1-540.0 | 1.7 | 450.1-500.0 | 5.9 |
| 540.1-600.0 | 1.1 | 500.1-600.0 | 9.7 |
| 600.1-700.0 | 1.2 | 600.1-700.0 | 7.2 |
| 700.1-800.0 | 0.7 | 700.1-800.0 | 5.5 |
| 800.1-900.0 | 0.4 | 800.1-900.0 | 4.0 |
| 900.1-1000.0 | 0.3 | 900.1-1000.0 | 3.0 |
| Over 1000.0 | 0.2 | Over 1000.0 | 10.5 |
| Total | 100.0 | 100.0 |