Income distribution affects economic growth significantly, with implications for the well-being of the economy and social cohesion.
Income distribution has significant implications on economic growth. Studies show that during periods of growth, the distribution of income can vary, but the income of the poor usually improves by a ratio of 7 to 1. This means that even if inequality increases, the poor still gain in absolute terms as income rises.
Moreover, a growing concentration of income among the top earners can lead to greater wealth inequality. Inheritance of wealth and human capital can further strengthen the income and wealth disparity. Addressing distributional issues is crucial for the well-being of the economy and adherence to social norms.
Transfers from top earners to lower-income individuals can increase total utility in the economy and promote social coherence. Ensuring justice by avoiding excessive inequality can lead to a more stable and cohesive society.
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