Public Finance

Government and the

Income Distribution
Government and the Income Distribution

 Re-distribution of the Government Income refers to the process of transferring

collected income of the government from surplus unit to deficit unit for the
social welfare, Like – establishment of public goods.
 Why Re-distribution of the Government Income? In a word the basic cause of
Re-distribution of the Government Income is social welfare. The others
objectives of this function of the government are as follows;
 Attainment of Economic stability-by maintaining equality between total
demand and production of the country
 Attainment of Full employment- engaged of the full workforce in their
respective jobs/production
Government and the Income Distribution
 Optimum allocation of resources-balance between the long run and short run
distribution of resources
 Economic redistribution of Income and Wealth –balance among the heads of
distribution of resources
 Maintain stability of the Price level- Ensure price stability in the market and
economy as well.
 Ensure optimum rate of development- certain the budget allocation in each
session for development work
 Social security- ensure the “making the poor better-off without making the
rich worse-off” i.e; basic needs for mass people.
Economic Growth & Justification of Income redistribution
 With the government intervention economic growth and the income
distribution is justified under the following three circumstances;
1. The income distribution may be shown as the presence of public goods that
enters all persons utility function.
2. IT ensure the equal level of utility for poor and rich people
3. As the general consensus the social welfare function is justify the economic
growth and income re-distribution.
Role of Income tax in minimizing Income inequality as
income re-distribution
 By imposing tax in progressive rate government can reduce the gap between
surplus and deficit unit of the society. After generating the revenue govt. can
redistribute it to the destitute people of the society. As a result income
inequality may reduce from the society. This fact can be discussed through
Lorenz Curve analysis in graphically;
 The Lorenz curve is a graphical representation of income inequality or wealth
inequality developed by American economist Max Lorenz in 1905. The graph
plots percentiles of the population on the horizontal axis according to income
or wealth.
Role of Income tax in minimizing Income inequality as
income re-distribution
Role of Income tax in minimizing Income inequality as
income re-distribution
 In this example, there has been a reduction in inequality – the Lorenz curve
has moved closer to the line of equality due to imposes of tax by the
government. Such as
• The poorest 20% of the population now gain 9% of total income
• The richest 10% of the population used to gain 45% of total income but now
only get 25% of total income.
Reduction of poverty by income redistribution
 Ensure the better social security –like; welfare compensation, Benefits for
materiality, food and shelter facility etc.
 Special Allocation – like; GR, TR, RDEP, VGF, Rationing etc.
 Infrastructural development-RHW, Cyclone center, Mosque etc.
 Social services- Ault education, Nutrient & sanitation program etc.
 Economic development- through savings for Capital formation
Any Questions……

Thank You…
Title and Content Layout with List
• Add your first bullet point here
• Add your second bullet point here
• Add your third bullet point here
Title and Content Layout with Chart
6

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

Two Content Layout with Table
• First bullet point here Class Group A Group B
• Second bullet point here Class 1 82 95
• Third bullet point here Class 2 76 88
Class 3 84 90
Two Content Layout with SmartArt
• First bullet point here
Group A
• Second bullet point here
●
Task 1
●
Task 2
• Third bullet point here

Group B
●
Task 1
●
Task 2

Group C

●
Task 1
Add a Slide Title - 1
Add a Slide Title - 2
Add a Slide Title - 3
Add a Slide Title - 4
Click icon to add picture

Add a Slide Title - 5