Absolute poverty refers to severe deprivation of basic human needs, including food, sanitation, safe drinking water, shelter and education.
Relative poverty occurs when an income is below a specified proportion of average income (e.g. below 60% of median income in UK).
Absolute poverty can be reduced when GDP increases, so tax revenue can be used on health, education and welfare payments.
Relative poverty can be reduced through welfare payments and progressive taxation.
Income is a flow of money.
Wealth is a stock of assets.
The distribution of income is influenced by: MRP/ education and skills, wage differentials, earned and unearned income (owning factors of production, financial assets etc.)
The distribution of wealth is influenced by: age (wealth is an accumulation of income over time), inheritance/ the ability to benefit from capital gains (e.g. house price rises), and income is taxed much more heavily than wealth.
Wealth and income inequality between countries may be caused by natural disasters, natural resources, wars, corruption.
The Lorenz curve shows the cumulative percentage of income against the cumulative percentage of the population, against a straight, diagonal line of equality through the origin.
The Gini Coefficient is a measure of the area between the two curves, divided by the total area.
Kuznets: inequality increases during the industrial stage and then decreases when the economy becomes service-based.
Piketty: inequality rises as the rate of return on capital grows faster than salaries.
Capitalism: leads to inequality due to: wage differentials, skill differences, people owning assets.