Madden, argues that income distribution refers to division of income amongst different individual groups, households, factors of distribution, social classes, to compute an average to be used for comparison purposes. It is mainly influenced by the labor market, education, innate ability, race, wealth consideration, culture, development patterns and personal preference for work. Evidently, the federal government has allowed Income distribution amongst the people in United States. Income distribution has certainly brought in various effects to the United States citizens. Although income distribution favors the economy of a country, it also has negative effects to the same nation.
Income distribution has accrued benefits to the United States. The distribution of income among individuals has led to proper management of resources by the same people. Few individuals and hose holds in United States take the highest percentage of the income and because they are favored to have factors such as education, they are able to manage it. This then results to more generation of income which is beneficial to the country. In accordance to classical theory, income inequality will positively affect the economic development. Marginal propensity of the population to save increases with wealth and inequality stimulates economic growth, increases capital accumulation as well as savings. Most importantly, the modern theory advocates that income distribution is crucial when determining aggregate economic activity along with economic growth. Also, income inequality is believed to act as incentive for innovation and competition within us economy.
Income distribution, on the other hand, also contains some negative impacts. Income distribution leads to income inequality amongst the people which then results to poor social cohesion. When there is disparity in income among the society, people don’t trust each other, there is also lower community involvement, and more so crime rates such as homicide are constantly high. Similarly, economic inequality correlates with reduction in distributive efficiency in a society. Hence, there is reduction of total personal utility as there is decreasing wealth marginal utility. For instance, a single household will usually provide less utility to only one millionaire than it would provide to a homeless large family.
Federal government should seek to influence income distribution through social programs and tax policy. Income distribution is healthy to the economy and hence the government should lay out strategies that will directly influence distribution of income among the population. The strategies should be focus on having tax policies that favor income distribution, whereby, taxation should be done through progressive income tax systems. The distribution will act as incentive to the citizens and therefore will stimulate more people into engaging in economic activities that will eventually trigger economic growth. The goal should be having a slightly more (or less) equal distribution. Ryscavage believes that high inequality or high stratification of income will certainly create a high amount of social stratification thus, leading to healthy competition of status. Therefore, having a slightly equal distribution will equally trigger economic growth through competition.
Although the distribution of income can be beneficial to the economic growth of a country, it may lead to uncertainty and risky affair should the federal government decide to influence income distribution. The government will be risking criticism if it influences income distribution. Many people have been against income distribution arguing that since income is legitimately obtained, then it will be unjust to distribute it in unequal measures. Similarly, the government will also be encouraging exploitation of larger population by the few advantaged group. In conclusion, income distribution stimulates a nation’s economic growth as well as it leads to significant negative impacts such as poor social cohesion and reduction of distributive efficiency in a society.