Redistribution of Wealth : Role of state

Presented by-

Rohit Phulsunge

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Overview Wealth all across the globe held by 4.4 billion adults, has increased by 72

percent since the year 2000 to reach $195 trillion

It is estimated to rise further by 62% to $315 trillion by 2015 (Source: Credit Suisse Research Institute)

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Re-distribution of wealth (ROW) It refers to the transfer of wealth in 2 ways:-

1)Progressive redistribution : It signifies the transfer of wealth from the rich to the poor

2)Regressive redistribution : It signifies the transfer of wealth from the poor to the rich

Transfer of “wealth” is a broad concept and it usually encompasses transfer of wealth, income, property from some individuals to other by means of some social factors like-

Taxation

Monetary policies

Welfare

Nationalization

Charity etc

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Gini index : A tool to measure ROW Gini coefficient is a useful tool used by economists to measure the disparity in distribution of wealth across the population of a country

According to Gini coefficient: “The higher a Gini coefficient the more unequal is the distribution of wealth”

If Gini coefficient = 1, then it signifies complete inequality

If Gini coefficient =0 , then it signifies complete equality

So ideally a nation’s Gini coefficient should be as low as possible with 0 being a hypothetical ideal point

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Gini index chart of the globe

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Source : www.gini-research.org

Top 20 nations from most equal to most unequal in terms of distribution of wealth

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Nation( From 1 to 10 down)

Gini index(%)

Japan 54.7

China 55

Spain 57

South Korea 57.9

Italy 60.9

Finland 62.1

Australia 62.2

Netherlands 65

Taiwan 65.5

Bangladesh 66

Nation ( From 10 to 20 down)

Gini index(%)

Germany 66.7

India 66.9

Vietnam 68.2

Canada 68.9

UK 69.7

Pakistan 69.8

Russia 69.9

Thailand 71

Turkey 71.8

France 73

Source : The Times of INDIA

Role of state in reducing disparity There are several measures incorporated by the government to reduce

inequality:-

1) Building efficient and transparent product markets

2) Expanding financial markets

3) Raising the income of those at the bottom through labor market reforms

4) Using distributive fiscal policies

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1) Building efficient and transparent product markets

The factors which affect the expansion of new private firms are:

1.Anti-competitive practices

2.Licensing

3.Regulations

4.Corrupt practices

To build efficient and transparent product markets , the above factors should be kept under a check.

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2) Expanding financial markets The problems faced by firms are:-

1.New firms and especially small enterprises still face difficulties accessing long-term finance

2.Very shallow credit markets; private/small firms and SOEs have differential access

3. Firms face problems financing even working capital

Government should focus on expanding financial markets by implementing the above objectives.

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3) Raising the income of those at the bottom through labor market reforms

Some of the measures that should be followed by government are:-

1) Focus on raising incomes of low-skilled workers while maintaining wage flexibility

2) Antidiscrimination policies

3) Skill upgrading for poorest important in medium term

4) Product markets and governance are key to achieve parity

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4) Using distributive fiscal policies Government should focus on the following to enable effective distributive

fiscal policies

1) Focus on improving targeting of transfers

2) Policies to foster accumulation of public capital and education in poorest regions (within countries)

3) Scope to improve taxation and tax compliance

4) Restoring fiscal balance

5) Improve tax compliance and budget execution(arrears)

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The End

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