Arguments for uneven distribution of income and wealth, Managerial Economics

Arguments for Uneven Distribution of Income and Wealth

The basic economic argument to justify large income inequality was the assumption that high personal and corporate incomes were necessary conditions for saving which made possible investments and economic growth through mechanism such as the Harrod-Domar Model.  In this argument it is maintained that the rich save and invests a significant proportion of their incomes while the poor spend all their incomes on consumer items, and since GNP growth is assumed to be directly related to the proportion of National Income saved then an economy characterised by highly unequal distribution of income would save more and grow faster than one with more equitable distribution of income.  It was also assumed that eventually National per capita income would be high enough to allow for a sizeable distribution of income via Taxes and subsidies but until such time is reached, any attempt to redistribute income significantly could only serve to lower growth rate and delay the time when a large income cake would be cut up into smaller sizes for all population group.

Posted Date: 11/28/2012 6:08:12 AM | Location : United States

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