By Robert von Weizsäcker
An knowing of the origins of profits distribution is of important value for any public coverage which has the purpose of fighting financial inequality. This e-book attempts to supply a few theoretical foundations which can function a rational foundation for such guidelines. The method, strongly prompted by means of human capital thought, is principally novel in that it allows person analyses at 3 interconnecting degrees of aggregation utilizing a similar uncomplicated microeconomic version: the extent of the final profits distribution throughout all age teams; and the distribution of lifetime profits. The research demonstrates the interdependence among age composition, inequality, and public distribution coverage. It offers monetary interpretations of empirical findings and identifies a number of coverage conflicts. It additionally addresses the query of the way changes among people are reworked into source of revenue adjustments.
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Additional info for A Theory of Earnings Distribution
However, P # 1 is also employed experimentally in a series of calculations. The reference specification assumes a period length of one year. The (discrete) discounting rate r therefore denotes an annual rate of interest. A real interest rate on capital of 6% seems to be a plausible average value, if we work out the average by taking the term structure of all interest rates as the basis, and if we assume no risk of default. If you consider the interest trend in Great Britain or in the USA, then considerably higher values are possible; some calculations therefore assume a rate of 10% or more.
I cannot imagine any a priori theoretical structure which would explicitly specify the effect of these stochastic interdependences on the distribution of earnings. 33 33 If it should further prove impossible to find a mapping back to the one-dimensional distribution function FY_, this would create difficulties for the transformation from the joint probability density function to an (expected) relative frequency function (cf. p. 18) because of the conceptual problems with the associated random experiment (how to construct the random sample).
In fact, a (deterministic) aggregate can result in stochastic dependence between individuals. Consider, for example, environmental pollution: cases can arise where the key factor is the density of particles in the air, rather than the neighbour's chimney. Another example is market demand: the price something reaches depends on total production (and not just on the neighbour's output). Generally, the individual stochastic processes are invariably no longer independent where individual income levels depend on macroeconomic parameters.
A Theory of Earnings Distribution by Robert von Weizsäcker