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Lorenz Curve: Distribution of Wealth in the United States

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Construct an income distribution diagram using the Lorenz Curve for the U.S. with the latest data available. Describe the extent of inequality depicted in your diagram? Describe how you would reduce the inequality using vertical equity taxation? Using horizontal taxation?

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The Lorenz curve is attached. It is the same curve that has been attached in Solution: 505472. The same curve has to be used because the income data for U.S. remains the same.

The extent of inequality shown by the diagram is that the lowest 20% of the population gets only 3.3% of the income, the lowest 40% of the U.S. population gets only 11.8% of the income, the lower 60% of the U.S. population gets 26.4% of the income, the 80% of the U.S. population gets 49.8% of the U.S. income. The extent of income inequality is seen by the fact that the top 20% of the population gets 50.2% of income.

Vertical equity taxation can be used to reduce inequality because according to the vertical equity taxation, people with greater income should pay more taxes. In practice ...

Solution Summary

The answer to this problem explains the U.S. Lorenz Curve. The references related to the answer are also included.

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Lorenz Curve

Consider a 12-person stylized dual economy with the following income distribution:
(1,1,1,1,1,1,1,1,1,4,4,4,4)
1- Graph the Lorenz curve.
2- Calculate The Gini coefficient
3-Now suppose the incomes of two members increase from 1to 4. Graph the Lorenz curve (you may use your graph in part1, distinguish which curve applies here.)
4- what kind of growth is this: traditional sector enrichment, modern sector enrichment, modern sector enlargement, or modern sector international effect?
5- Can you say what has happened to inequality?
-Suppose everybody increases by 10%. what happens to inequality? justify the answer.

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