Income is a key indicator of the degree of development of a country.
In order to evaluate the overall well-being one should however know not only the average level per capita, but also+ the distribution in the population.
Towards the end of the 20th century, for example, the so-called globalization it has accelerated the integration of world markets, and many developing economies have achieved remarkably high growth rates. How they distributed the fruits of this growth? The world income inequality has increased or decreased? These questions would be irrelevant if individuals were identical and consume the same basket of goods and services, or if the product was distributed so in some sense 'optimaly', but these are abstract conditions that never occur in the real world.
Knowledge of the distribution of income is not only essential in terms of regulation. It is also important analytically, when the ways in which we divide the product are intrinsically connected with the functioning of an economy, in particular with the economic growth process. For classical economists, Marxists and post-Keynesians, the distribution of income among social classes was given the task of securing the conditions of capital accumulation; in neoclassical variable 'social class' has no analytical role and the same division between profits and wages lost meaning with the rise in macroeconomics fiction of the representative agent.
In recent years, economists have explored alternative channels linking inequality and economic growth; some have formalized a political mechanism due to which the amount of public redistribution depends on the preferences of the 'median' voter: the poorer the latter, the more greater will be the redistribution, negatively affecting the incentives to invest, will go to the detriment of economic growth. Others have pointed out the imperfections in the capital markets, which can make it harder to borrow less affluent people, without sufficient collateral assets, precluding them the opportunity to take full advantage of investment opportunities or to achieve a proper education. Inequality has negative effects for economic growth in both
approaches, but the vision of public intervention underlying is antithetical: it distorts private choices in the former, it generates efficiency gains by removing imperfections in the second. Following this reasoning, the empirical interest for inequality tends to become instrumental, no more intrinsic, and focuses on the ways in which it can affect the progress of the phenomenon under analysis, economic growth.
The estimate of the inequality of income distribution raises complex theoretical and empirical problems. Historically, the measurement of inequality has developed favoring the construction of descriptive indexes, in the belief that the same methods were applicable both to income or wealth as all other features quantitative. The Gini index is a typical example, which measures the average distance of the income of all individuals from those of all others, and varies, for non-negative values, between 0, when there is perfect equality, and 1, when all income is concentrated in the hands of one person. Other descriptive statistics are percentiles: placing incomes in ascending order, the x-th percentile is the value of x% top income tax returns and lower than the remaining 100-x%. Thus the 10th percentile, possibly expressed than the median (P10), is an indicator of low income, while the interdecilico ratio, the ratio between the 90th and 10th percentiles, is a measure of inequality. As we will see in the following chapters, the notions of income are multiple. Income market (or original) is defined as the sum of income from labor and capital and private transfers to market incomes; gross income is calculated by adding the market rate public transfers; net income, or available, is derived from the gross deducting direct taxes and social contributions.
As for with the degree of inequality of income distribution, the developed economies are divided into well-defined groups: the Nordic countries and continental Europe show less unequal distributions of English- speaking countries and southern Europe; the dispersion of income is even higher in the Baltic States and Poland; the United States are characterized by
the highest level of inequality, surpassed only by the much less developed economies of Mexico and Russia.
However, the deep crisis that hit the world economy since 2007 cannot affect these trends. In the short term, it is expected that the most advanced countries will put a stop to the compensation of top managers and the collapse in equity prices will reduce the income from the capital of the richest, resulting in reduced inequality; in the opposite direction will be the consequences of the recession on employment and income trend, though muffled by the social protection system. It is difficult to estimate the net effect of these trends, but it is even harder to imagine what will persist for years to come. In the light of the above mentioned issues, in this work I will address several issues concerning economic inequality.
More precisely, in the first chapter I will discuss about the life-cycle hypothesis, developed by Franco Modigliani, and the evolution of the model, while in the second chapter I will focus on the permanent income theory, developed by Friedman. In the third, I will present some result about the book of T. Piketty as the evolution of inequality of income, wealth, wages and relationship capital income, in developed countries, it follows a U-shaped curve. In the fourth and last chapter I will present some data drown from OECD reports showing the growing gap between rich and poor and investigating some of the factors that may have caused this discrepancy.