Income Distribution and the U.S. Economy: Public and Private Sectors, Papers of Introduction to Macroeconomics

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Chapter

The U S Economy:The

U.S. Economy:

Public and Private Sectors

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Pat Yanez

The U.S. Economy

20%

Public Sector^ Private Sector^ Private Sector

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Pat Yanez

HOUSEHOLDS AS INCOME RECEIVERS

We can study income distribution using two approaches:

FUNCTIONAL DISTRIBUTION

WAGES

RENT

WAGES

RENT

INTEREST

PROFIT/LOSS

PERSONAL DISTRIBUTION

SHOWS ALLOCATION OFSHOWS

ALLOCATION OF

INCOME AMONG INDIVIDUAL

HOUSEHOLDS

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Pat Yanez

Functional Distribution of Income

2004

Households as Income Receivers:

WAGES

$7 125 Billion

71%

Functional

Distribution of Income

• 2004

WAGES

$

,125 Billion

71%

PROPRIETOR’S INCOME

939 Billion

9%

CORPORATE PROFIT

1,352 Billion

14%

INTEREST

498 Billion

5%

RENTS

73 Billion

1%

Total:

$9,709 Billion

100%

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Pat Yanez

Household Uses of Income

2005

Households as Spenders:

Household

Uses of Income

2005

Household Income Expended (%)

PersonalTaxes

s) d

0

10

20

30

40

50

60

70

80

90

12%

PersonalSaving

ousehold H

0%

Personal Consumption Group (H

88%

C

ti

Di id d B t

Income

59% $5,155 billion

Composition

of

Consumption

12% $1,027 bil.

29% $2,264 billion

C

onsumption Divided Between…

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Services

Nondurable

Goods

DurableGoods

Legal Forms of Business

• Sole Proprietorship • Partnership • Corporation•Corporation Domestic Output by Business TypeDomestic

Output by Business Type

Corporations

20%

Corporations

Partnerships

8%

84%

Sole Proprietorships

Partnerships

Sole Proprietorships

72%

11%5%

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% of Firms

% of Sales

Sole Proprietorships

5%

TheThe

PublicPublicSectorSector

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PUBLIC SECTOR: GOVERNMENT’S ROLE1. Providing the Legal Structure2. Maintaining Competition

• Monopoly

•Regulation

**- Antitrust

• Regulated Monopolies**
• Monopoly

•Regulation

**- Antitrust

• Regulated Monopolies** 3. Redistributing Income - Transfer Payments - Market Intervention - Taxation

4 R

ll

i^

R

4. Reallocating Resources -^

Private Goods (divisible), Public Goods (indivisible)

-^

Quasi-Public Goods

-^

Market Failure

-^

Spillovers or Externalities:

• 5. Promoting Stability
  • Unemployment - Inflation

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Government Finance

G

t P

h

• Government Purchases• Government Transfers

35 30 ut

Government

TransferPayments

31%

25 20 U.S. Outpu

Payments

5%

12%

27%

20 15 entage of U

22%

10 5 Perce

GovernmentPurchases

22%

19%

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Pat Yanez

0

1960

2005

GLOBAL PERSPECTIVE

Total Tax Revenue – % of Total Output

• 2004

Government FinanceTotal Tax Revenue

% of Total Output

2004

Sweden

10

20

30

40

50

Denmark

NorwayFinlandFrance

44.944.343 7

France

Italy

United Kingdom

Germany

43.742.

36.134.

y

Canada Australia

United States

J

25.425 3

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Japan

South Korea

Source:OECD

25

.

State Finance

-^

Primary Revenues^ –

Sales & Excise Taxes

• 48% -^

Personal Income Taxes

• 34% -^

Personal Income Taxes

• 34% -^

Corporate Income Taxes & License Fees

• -^

Primary Expenditures^ –

Education

• 35% -^

Public Welfare

• 28% -^

Health & Hospitals

• 7%

Highways

7%

-^

Highways

• 7% -^

Public Safety

• 4% -^

Other

–19%

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Pat Yanez

Local Finance

Primary Revenues^ –

Property Taxes

• 73% -^

Sales & Excise Taxes

• 17%

Primary Expenditures

Education

44%

-^

Education

• 44% -^

Welfare, Health & Hospitals

• 12% -^

Public Safety

• 11%

Housing Parks & Sewers

8%

-^

Housing, Parks, & Sewers

• 8% -^

Streets & Highways

• 5%

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Pat Yanez

Chapter

The U S Economy:The

U.S. Economy:

Public and Private Sectors

4-

Pat Yanez