31 Aralık 2012 Pazartesi

The relationship between the distribution of income and poverty

The reduction of poverty in a country is one of the main objectives of the governments. They are trying to decrease the number of poor people by reducing the number of unfair and unethical transactions that are being done in the relevant country, giving equal rights and opportunities to the people in education, health, etc., increasing the employment by opening new work opportunities. This will transfer the portion of national income earned by the wealthiest segment of the native people to the lower income people. If the country does not fix this problem by applying the previously mentioned ways, the increase in the national income will most probably go to the wealthiest segment again.

The new transactions and all projects which are profitable than the others will be initiated through this segment of people. Hence, the new income generation will not contribute to the general welfare of the country. Furthermore, the number of people in the same country will have direct effect on the distribution of the income generated. If there is no increase in the employment opportunities in the same country, the increase in the number of people who are willing to work will cause more unemployment. These people will not contribute to the income generation but use the country resources to survive. Therefore the poverty reduction by increasing the total income should be also supported by the decrease in the population growth which will increase the GDP per capita which will also increase the total wealth of the citizens in that country.

We know that there is a Lorenz Curve which is used to represent the income distribution, where it shows for the bottom x% of households, what percentage y% of the total income they have. Also, stemming from Lorenz Curve, there is a Gini coefficient which is again a measure of inequality of the income distribution. It is defined as a ratio between 0 and 1 and is explained as the higher the Gini coefficient, the greater the income inequality is.

In order to decrease the number of poor people the country should reduce the Gini Index by We can take Turkey as an example. The Gini Index was 0.49 in 1994 and it has dropped to 0.44 in 2002 and 0.4 in 2004. In the same period of time the poverty ratio was 0.27 in 2002 and 0.25 in 2004.  It also shows that in order to decrease the poverty the governments should be very much careful about the even distribution of the national income.

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