Question

2. The Lorenz curve measures inequality in person income distribution. What is the difference between personal income distribution and functional income distribution? 3. What is the difference between a proportional tax and a progressive tax? What are the problems of progressive taxation as a means to achieve greater equality in income distribution?

Answer 1

Answer: The answers are given below

Explanation:

Personal income distribution focuses on how income is being shared among the individuals in a nation while the functional income distribution has to do with the amount of income that is relative to the production factors

A progressive tax is a type of tax whereby the high income earners pay a larger percentage of their income than those that are from the low income groups while a proportional tax is a type of tax whereby everyone whether from high or low income group pays the same percentage as tax.

The problem of progressive taxation as a means to achieve greater equality in income distribution is that it encourages inequity. The aim of the progressive tax system is to bring about fairness whereby everyone in the economy will pay a fair share but the reality is that actually leads to many households paying more than the amount they should fairly pay while some pay close to nothing. It can also lead to the disincentive to work hard. When workers realize that a higher percentage of their income will be deducted as tax, they may reduce their commitment to work which lead to reduction in productivity.