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Distributional Role of the State - Essay Example

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Distributional Role of the State

(SJ Grant 2000).
It is a general characteristic of developing countries that income is unevenly distributed. Partly, because the income generating assets especially land are owned by the few. As a result we can see great extremes of both the rich and the poor. In 1998 for example the World Bank figures show that in Peru the poorest 20% of the population had only 4.4percent of total household income, while the richest 20% had 51.3% of total household income. These great extremes of the rich and the poor mean that in developing countries deprivation is very common.
The distribution of income can be examined in two main ways .One is by examining the distribution of income between the factors of production. In this case the wages account for the largest percentage but the share of income has fallen over the years. Another way of examining the distribution of income is to examine how disposable income is distributed. Disposable income mainly consists of incomes that are derived from factor services together with various forms of cash benefits, i.e. social security payments etc . Minus direct taxes i.e. income taxes and national insurance contributions.
Two very vital elements in the income of households of distribution are the investment income and the income derived from self employment. The unequal distribution of wealth is a major cause of the inequality in the distribution of income.

How much Inequality
'Gross Inequalities in the distributions of income and wealth lead to feelings of 'unfairness' because , quite apart from creating inequalities in living standards , they lead to inequalities of opportunities in living standards ,they lead to inequalities of opportunity. The wealthy can buy superior education and training for their children and there is no doubt that the possession of wealth confers certain social advantages .Inherited wealth provides the recipient with an income regardless of his /her abilities, aptitudes or efforts. In deciding what an equitable distribution of income is, the economist can offer no conclusive answers because it is a matter of personal judgment (i.e. a value judgment)
On the assumption that the purpose of the economic activity is to maximize the satisfaction of wants, it might be argued that an equal distribution of income would be the ideal. This conclusion is based on the notion that the law of diminishing marginal utility applies to income and that everyone derives the same utility from a given amount of income. But incomes are also incentives to production .In order to get people to work harder, accept greater responsibility, develop new ideas, undertake long and difficult training or to carry out unpleasant tasks, it is claimed that it is necessary to offer higher rewards .Some economists argue that if these incentives are not forthcoming, the amount of real income available for distribution will probably be reduced. The problem is to weigh ...Show more


The market economy provides opportunities for individuals to earn an income and also acquire wealth. But the opportunities of earning and income are not equally distributed. Individuals are not provided with equal opportunities in education. Some are also limited in their capacity to learn or they may have acquired a skill only to find that the skill is declining.
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Distributional Role of the State essay example
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