- Industry: Economy; Printing & publishing
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Does economic growth create more or less equality? Do unequal societies grow more or less slowly than equal ones? Economists have debated these questions for as long as anyone can remember. One problem is to agree which sort of inequality matters: equality of outcome (that is, income) or of opportunity? Another is how then to measure it. Equality of opportunity, which, in theory, should make a difference to growth, because it is about giving people the chance to make the most of their human capital, is probably beyond the ability of statisticians to analyze rigorously. The most often used measure of income inequality is the Gini coefficient. The evidence suggests that extreme poverty is more likely to slow growth than income inequality itself. This is because very poor people cannot buy the education they need to enable them to become richer and their children may be forced to forgo schooling in order to work for money. Economic growth has generally reduced inequality within a country. This has been partly as a result of redistributive tax and benefits systems, which have become so significant that they may now be causing slower growth in some countries. The availability of welfare benefits may have discouraged unemployed people from seeking out a better job; and the high taxes needed to pay for the benefits may have discouraged some wealthy people from working as hard as they would have done under a friendlier tax regime. However, the new economy may see inequality in rich countries widen again, thanks to its alleged winner-takes-all distribution of financial rewards.
Industry:Economy
When the supply or demand for something is insensitive to changes in another variable, such as price. (See elasticity. )
Industry:Economy
Taxes that do not come straight out of a person’s pay packet or assets, or out of company profit. For example, a consumption tax, such as value-added tax (see expenditure tax). Contrast with direct taxation, such as income tax. Indirect taxation has become increasingly popular with politicians because it may be less noticeable to people paying it than income tax and is harder to avoid paying.
Industry:Economy
A curve that joins together different combinations of goods and services that would each give the consumer the same amount of satisfaction (utility). In other words, consumers are indifferent to which of the combinations they get.
Industry:Economy
Keeping pace with inflation. In many countries, wages, pensions, unemployment benefits and some other sorts of income are automatically raised according to recent movements in the consumer price index. This allows these different sorts of income to retain their value in real terms.
Industry:Economy
Economists love to compile indices aggregating lots of individual data, so they can analyze broad trends in the behavior of an economy. Inflation is measured by an index of consumer (retail) prices. There are indices of all sorts of things that are bought and sold of which perhaps the best known are share price indices like the Dow Jones Industrial Average or FTSE-100. The main challenges in compiling an index are what, exactly, to include in it and what weight to give the different things that are included. A particularly tricky question is how to change an index over time. Measures of inflation are based on the price of a basket of things bought by a typical consumer. As the quality and choice of products in the basket change over time, the inflation index ought to take this into account. How, exactly, is much debated.
Industry:Economy
The importance of being there already. Firms that are in a market can have a significant competitive advantage over aspiring entrants to that market, for instance, through having the opportunity to erect barriers to entry. (See first-mover advantage. )
Industry:Economy
A much-loathed method of taxation based on earnings. It was first collected in 1797 by the Dutch Batavian Republic. In the UK it was introduced in 1799 as a “temporary” measure to finance a war against Napoleon, abolished in 1816 and reintroduced, forever, in 1842. In most countries, people do not pay it until their income exceeds a minimum threshold, and richer people pay a higher rate of income tax than poorer people. Since the 1980s, the unpopularity with voters of high rates of income tax and concern that high rates discourage valuable economic activity have led many governments to reduce income-tax rates. However, this has not necessarily reduced the amount of total revenue collected in income tax (see Laffer curve). Nor do governments that have reduced income tax rates always cut other sorts of taxes; on the contrary, they have often increased them sharply to make up for any revenue lost as a result of lower rates of income tax.
Industry:Economy
A change in the demand for a good or service caused by a change in the income of consumers rather than, say, a change in consumer tastes. Contrast with substitution effect.
Industry:Economy
The flow of money to the factors of production: wages to labor; profit to enterprise and capital; interest also to capital; rent to land. Wages left for spending after paying taxes is known as disposable income. For countries, see national income.
Industry:Economy
