Income Inequality & Culture Said Bonakdar Julia Holmberg Arthur Laborde Maisonnave

Culture 1. Effects of culture on development 1.1.Openness to import new ideas from abroad as historical economic process for example: - Europeans took over ideas from China, as ground powder and paper - Contrarily, China thought it showed its superiority using contacts to foreign countries - Japan enthusiastically borrowed ideas from Europe

Culture 1.2. Hard Work - survey in the US from 1985 says, that 46% of the Americans prefer work and 33% choose leisure - Greek attitude: work is for slaves - Protestant reformation: God created people with the aim to work (John Calvin)  Max Weber argued, that early protestant development in Europe is due to hard work

Culture

1.3. Trust - without trust, an economy would be reduced to a crude level and huge resources would be used to make sure, that people hold their promises

Culture

1.4 Social capital and social networks - social networks where people help each other, to - create trust - mutual aid - information transmission - facilitate collective actions - provide a form of insurance

Culture 1.5 Social capability - main aim is the improvement of functioning of the government - Experience of the population with the organization and management of large-scale enterprises - Ability to take advantage of market economics, through trade and specialization

Culture

1.6 What determines culture? - Religion - Climate & natural resources - Population density: higher density allows division of labour and allows larger markets; more experience with the government - cultural homogenity in form of ethnic fractionalization

Culture

1.7 Cultural Change - Growth affects the cultural values and the worldview of the residents of the growing country: urbanization, exposure to foreign ideas, increased education - Policy changes can be used to affect culture, i.e.: Kemal Ataturk changed the written language from Arabic to Latin alphabet and the calender from Islamic to the Western one

Income Inequality 2.1. Approaches to consider income distribution - Divide population into equal-sized groups and consider how much income each group has. - Divide income into equal-sized intervals and consider how much of population falls into each group. - i.e. measurement with GINI-coefficient, Lorenz-curve

Income Inequality 2.2 Kuznets Hypothesis - Inequality rises as a country develops and then declines (GDP)

Income Inequality 2.3 Is Growth good for the poor? - According to Kuznet, with increasing GDP per capita the inequality is increasing as well - BUT: the most important is the average income of a country, because poor people in rich and inequal countries are far better off than poor people in poor and egalitarian countries

Income Inequality 2.4 Sources of income inequality - Years of education - Technological advantages - Increase of international trade - “Superstar” Dynamic

Income Inequality

2.5 Effect of Income Inequality on Economic Growth Accumulation of Physical Capital - Inequality can affect growth through savings - Saving rates will increase with income - The more unequal income is, the higher is the fraction earned by high-income people and the higher is the total saving

Income Inequality Accumulation of Human Capital - Poorer people invest only in human capital - Richer people invest first in human capital, but mainly in physical capital - This implies a more equal distribution of human capital than of physical capital

Income Inequality 2.6 Economic Mobility - Intergenerational mobility, such as: - children‘s education - income groups - Mobility is determined by: - Access to education, public health policies and medical care - Nature of institutions and governments - Nature of marriages (rich and rich, poor and poor) - Degree of racial and ethnic discrimination

Thanks for your attention!