Income

Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which
is generally expressed in monetary terms.[1] Income is difficult to define conceptually and the definition
may be different across fields.[2] For example, a person's income in an economic sense may be different
from their income as defined by law.[2]

An extremely important definition of income is Haig–Simons income, which defines income as

Consumption + Change in net worth and is widely used in economics.[2]

For households and individuals in the United States, income is defined by tax law as a sum that includes
any wage, salary, profit, interest payment, rent, or other form of earnings received in a calendar year.[3]
Discretionary income is often defined as gross income minus taxes and other deductions (e.g., mandatory
pension contributions), and is widely used as a basis to compare the welfare of taxpayers.

In the field of public economics, the concept may comprise the accumulation of both monetary and non-
monetary consumption ability, with the former (monetary) being used as a proxy for total income.

For a firm, gross income can be defined as sum of all revenue minus the cost of goods sold. Net income
nets out expenses: net income equals revenue minus cost of goods sold, expenses, depreciation, interest,
and taxes.[1]

Economic definitions

Full and Haig–Simons income

"Full income" refers to the accumulation of both the monetary and the non-monetary consumption-ability
of any given entity, such as a person or a household. According to what the economist Nicholas Barr
describes as the "classical definition of income" (the 1938 Haig–Simons definition): "income may be
defined as the... sum of (1) the market value of rights exercised in consumption and (2) the change in the
value of the store of property rights..." Since the consumption potential of non-monetary goods, such as
leisure, cannot be measured, monetary income may be thought of as a proxy for full income.[1] As such,
however, it is criticized for being unreliable, i.e. failing to accurately reflect affluence (and thus the
consumption opportunities) of any given agent. It omits the utility a person may derive from non-monetary
income and, on a macroeconomic level, fails to accurately chart social welfare. According to Barr, "in
practice money income as a proportion of total income varies widely and unsystematically. Non-
observability of full-income prevent a complete characterization of the individual opportunity set, forcing us
to use the unreliable yardstick of money income.

Factor income

In economics, "factor income" is the return accruing for a person, or a nation, derived from the "factors of
production": rental income, wages generated by labor, the interest created by capital, and profits from
entrepreneurial ventures.[4]
In consumer theory 'income' is another name for the "budget constraint", an amount to be spent on
different goods x and y in quantities and at prices and . The basic equation for this is

This equation implies two things. First buying one more unit of good x implies buying less units of

good y. So, is the relative price of a unit of x as to the number of units given up in y. Second, if the

price of x falls for a fixed and fixed then its relative price falls. The usual hypothesis, the law of
demand, is that the quantity demanded of x would increase at the lower price. The analysis can be
generalized to more than two goods.

The theoretical generalization to more than one period is a multi-period wealth and income constraint. For
example, the same person can gain more productive skills or acquire more productive income-earning
assets to earn a higher income. In the multi-period case, something might also happen to the economy
beyond the control of the individual to reduce (or increase) the flow of income. Changing measured income
and its relation to consumption over time might be modeled accordingly, such as in the permanent income
hypothesis.

Legal definitions

Definitions under the Internal Revenue Code

Except as otherwise provided in this subtitle, gross income means all income from whatever
source derived, including (but not limited to) the following items: (1) Compensation for
services, including fees, commissions, fringe benefits, and similar items; (2) Gross income
derived from business; (3) Gains derived from dealings in property; (4) Interest; (5) Rents; (6)
Royalties; (7) Dividends; (8) Annuities; (9) Income from life insurance and endowment
contracts; (10) Pensions; (11) Income from discharge of indebtedness; (12) Distributive share
of partnership gross income; (13) Income in respect of a decedent; and (14) Income from an
interest in an estate or trust.

26 U.S. Code § 61 - Gross income defined. There are also some statutory exclusions from income.[2]

Definition under US Case law

Income is an "undeniable accessions to wealth, clearly realized, and over which the taxpayer has complete
dominion." Commentators say that this is a pretty good definition of income.[2]

Taxable income is usually lower than Haig-Simons income.[2] This is because unrealized appreciation (e.g.,
the increase in the value of stock over the course of a year) is economic income but not taxable income, and
because there are many statutory exclusions from taxable income, including workman's compensation, SSI,
gifts, child support, and in-kind government transfers.[5]

Accounting definitions
The International Accounting Standards Board (IASB) uses the following definition: "Income is increases
in economic benefits during the accounting period in the form of inflows or enhancements of assets or
decreases of liabilities that result in increases in equity, other than those relating to contributions from equity
participants." [F.70] (IFRS Framework).

Previously the IFRS conceptual framework (4.29) stated: "The definition of income encompasses both
revenue and gains. Revenue arises in the course of the ordinary activities of an entity and is referred to by a
variety of different names including sales, fees, interest, dividends, royalties and rent. 4.30: Gains represent
other items that meet the definition of income and may, or may not, arise in the course of the ordinary
activities of an entity. Gains represent increases in economic benefits and as such are no different in nature
from revenue. Hence, they are not regarded as constituting a separate element in this Conceptual
Framework."[6]

The current IFRS conceptual framework [7] (4.68) no longer draws a distinction between revenue and
gains. Nevertheless, the distinction continues to be drawn at the standard and reporting levels. For example,
IFRS 9.5.7.1 states: "A gain or loss on a financial asset or financial liability that is measured at fair value
shall be recognised in profit or loss ..." while the IASB defined IFRS XBRL taxonomy [8] includes
OtherGainsLosses, GainsLossesOnNetMonetaryPosition and similar items.

US GAAP does not define income but does define comprehensive income (CON 8.4.E75):
Comprehensive income is the change in equity of a business entity during a period from transactions and
other events and circumstances from nonowner sources. It includes all changes in equity during a period
except those resulting from investments by owners and distributions to owners.

According to John Hicks' definitions, income "is the maximum amount which can be spent during a period
if there is to be an expectation of maintaining intact, the capital value of prospective receipts (in money
terms)”.[9]

"Nonincome"

Debt

Borrowing or repaying money is not income under any definition, for either the borrower or the lender.[2]
Interest and forgiveness of debt are income.

Psychic income

"Non-monetary joy," such as watching a sunset or having sex, simply is not income.[2] Similarly,
nonmonetary suffering, such as heartbreak or labor, are not negative income. This may seem trivial, but the
non-inclusion of psychic income has important effects on economics and tax policy.[2] It encourages people
to find happiness in nonmonetary, nontaxable ways and means that reported income may overstate or
understate the well-being of a given individual.[2]

Income growth
Income per capita has been increasing steadily in most countries.[10] Many factors contribute to people
having a higher income, including education,[11] globalisation and favorable political circumstances such as
economic freedom and peace. Increases in income also tend to lead to people choosing to work fewer
hours. Developed countries (defined as countries with a "developed economy") have higher incomes as
opposed to developing countries tending to have lower incomes.

Income inequality
Income inequality is the extent to which income is distributed in an uneven manner. It can be measured by
various methods, including the Lorenz curve and the Gini coefficient. Many economists argue that certain
amounts of inequality are necessary and desirable but that excessive inequality leads to efficiency problems
and social injustice.[1] Thereby necessitating initiatives like the United Nations Sustainable Development
Goal 10 aimed at reducing inequality.[12]

National income, measured by statistics such as net national income (NNI), measures the total income of
individuals, corporations, and government in the economy. For more information see Measures of national
income and output.

Income in philosophy and ethics

Throughout history, many have written about the impact of income on morality and society. Saint Paul
wrote 'For the love of money is a root of all kinds of evil:' (1 Timothy 6:10 (ASV)).

Some scholars have come to the conclusion that material progress and prosperity, as manifested in
continuous income growth at both the individual and the national level, provide the indispensable
foundation for sustaining any kind of morality. This argument was explicitly given by Adam Smith in his
Theory of Moral Sentiments,[13] and has more recently been developed by Harvard economist Benjamin
Friedman in his book The Moral Consequences of Economic Growth.[14]

Income and health

A landmark systematic review from Harvard University researchers in the Cochrane Collaboration found
that income given in the form of unconditional cash transfers leads to reductions in disease, improvements
in food security and dietary diversity, increases in children's school attendance, decreases in extreme
poverty, and higher health care spending.[15][16]

History
Income is conventionally denoted by "Y" in economics. John Hicks used "I" for income, but Keynes wrote
to him in 1937, "after trying both, I believe it is easier to use Y for income and I for investment." Some
consider Y as an alternative letter for the phoneme I in languages like Spanish,[17] although Y as the "Greek
I" was actually pronounced like the modern German ü or the phonetic /y/.

See also
Citizen's dividend
Comprehensive income
Guaranteed minimum income
Income tax
Revenue
Social dividend
 Universal basic income
Unpaid work

References
1. Barr, N. (2004). Problems and definition of measurement. In Economics of the welfare state.
New York: Oxford University Press. pp. 121–124
2. McCaffery, Edward (2012). The Oxford Introductions to U.S. Law: Income Tax Law 1st
Edition. Oxford University Press.
3. Case, K. & Fair, R. (2007). Principles of Economics. Upper Saddle River, NJ: Pearson
Education. p. 54.
4. Staff (2012). "factor income" (https://web.archive.org/web/20120618040855/http://www.busin
essdictionary.com/definition/factor-income.html). BusinessDictionary.com. WebFinance, Inc.
Archived from the original (http://www.businessdictionary.com/definition/factor-income.html)
on 18 June 2012. Retrieved 20 June 2012. m
5. Brooks, John R., "The Definitions of Income" (2018). Georgetown Law Faculty Publications
and Other Works. 1952. https://scholarship.law.georgetown.edu/facpub/1952/
6. admin. "Conceptual Framework for Financial Reporting 2018" (https://www.iasplus.com/en/s
tandards/other/framework). www.iasplus.com. Retrieved 2022-06-28.
7. "IASB" (https://www.ifrs.org/issued-standards/list-of-standards/).
8. "IASB" (https://www.ifrs.org/issued-standards/ifrs-taxonomy/ifrs-taxonomy-2021/).
9. "Oxbridge Notes" (https://www.oxbridgenotes.co.uk/revision_notes/accounting-lse-financial-
accounting-analysis-and-valuation/samples/5-hicks-income). Retrieved 18 August 2016.
10. "Gapminder World" (http://www.gapminder.org/world/#$majorMode=chart$is;shi=t;ly=2003;lb
=f;il=t;fs=11;al=30;stl=t;st=t;nsl=t;se=t$wst;tts=C$ts;sp=5.59290322580644;ti=2007$zpv;v=0
$inc_x;mmid=XCOORDS;iid=0AkBd6lyS3EmpdHo5S0J6ekhVOF9QaVhod05QSGV4T3c;b
y=ind$inc_y;mmid=YCOORDS;iid=rdCufG2vozTpKw7TBGbyoWw;by=ind$inc_s;uniValue=
8.21;iid=phAwcNAVuyj0XOoBL_n5tAQ;by=ind$inc_c;uniValue=255;gid=CATID0;by=grp$m
ap_x;scale=log;dataMin=58;dataMax=108111$map_y;scale=lin;dataMin=26;dataMax=56$m
ap_s;sma=49;smi=2.65$cd;bd=0$inds=). Gapminder Foundation.
11. "Gapminder World" (http://www.gapminder.org/world/#$majorMode=chart$is;shi=t;ly=2003;lb
=f;il=t;fs=11;al=30;stl=t;st=t;nsl=t;se=t$wst;tts=C$ts;sp=5.59290322580644;ti=2007$zpv;v=0
$inc_x;mmid=XCOORDS;iid=0AkBd6lyS3EmpdHo5S0J6ekhVOF9QaVhod05QSGV4T3c;b
y=ind$inc_y;mmid=YCOORDS;iid=pyj6tScZqmEdrsBnj2ROXAg;by=ind$inc_s;uniValue=8.
21;iid=phAwcNAVuyj0XOoBL_n5tAQ;by=ind$inc_c;uniValue=255;gid=CATID0;by=grp$ma
p_x;scale=log;dataMin=58;dataMax=108111$map_y;scale=lin;dataMin=8.7;dataMax=100
$map_s;sma=49;smi=2.65$cd;bd=0$inds=). Gapminder Foundation.
12. "Goal 10 targets" (https://web.archive.org/web/20201127140337/https://www.undp.org/conte
nt/undp/en/home/sustainable-development-goals/goal-10-reduced-inequalities/targets.html).
UNDP. Archived from the original (https://www.undp.org/content/undp/en/home/sustainable-
development-goals/goal-10-reduced-inequalities/targets.html) on 2020-11-27. Retrieved
2020-09-23.
13. Smith, Adam (2009). The theory of moral sentiments (https://www.worldcat.org/oclc/1017407
319). Oxford: Clarendon. OCLC 1017407319 (https://www.worldcat.org/oclc/1017407319).
14. Friedman, Benjamin M (2006). The moral consequences of economic growth (https://www.w
orldcat.org/oclc/71353264). New York, NY: Vintage Books. ISBN 978-1-4000-9571-1.
OCLC 71353264 (https://www.worldcat.org/oclc/71353264).
15. Pega, Frank; Liu, Sze; Walter, Stefan; Pabayo, Roman; Saith, Ruhi; Lhachimi, Stefan (2017).
"Unconditional cash transfers for reducing poverty and vulnerabilities: effect on use of health
services and health outcomes in low- and middle-income countries" (https://www.ncbi.nlm.ni
h.gov/pmc/articles/PMC6486161). Cochrane Database of Systematic Reviews. 11 (4):
CD011135. doi:10.1002/14651858.CD011135.pub2 (https://doi.org/10.1002%2F14651858.
CD011135.pub2). PMC 6486161 (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6486161).
PMID 29139110 (https://pubmed.ncbi.nlm.nih.gov/29139110).
16. Pega, Frank; Pabayo, Roman; Benny, Claire; Lee, Eun-Young; Lhachimi, Stefan; Liu, Sze
(2022). "Unconditional cash transfers for reducing poverty and vulnerabilities: effect on use
of health services and health outcomes in low- and middle-income countries" (https://www.n
cbi.nlm.nih.gov/pmc/articles/PMC8962215). Cochrane Database of Systematic Reviews.
2022 (3): CD011135. doi:10.1002/14651858.CD011135.pub3 (https://doi.org/10.1002%2F1
4651858.CD011135.pub3). PMC 8962215 (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8
962215). PMID 35348196 (https://pubmed.ncbi.nlm.nih.gov/35348196).
17. "Why Y?" (http://gregmankiw.blogspot.com/2016/12/why-y.html). Greg Mankiw's Blog.
December 21, 2016.

Further reading
D. Usher (1987). "real income", The New Palgrave: A Dictionary of Economics, v. 4,
pp. 104–5.

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