Which of the following is most likely to increase the Gini coefficient in the home country?
a. An increase in the unemployment rate
b. An increase in the wages of the bottom 10% income individuals
c. An income tax system that taxes the rich more than the poor (i.e a progressive tax system).
d. An increase in number of top 1% (income) individuals moving abroad from the home country
The correct answer and explanation is:
The correct answer is d. An increase in number of top 1% (income) individuals moving abroad from the home country.
Explanation:
The Gini coefficient is a measure of income inequality in a society, ranging from 0 (perfect equality) to 1 (maximum inequality). A higher Gini coefficient indicates greater inequality, while a lower coefficient indicates more equal distribution of income.
Let’s examine each option in terms of its likely impact on the Gini coefficient:
- a. An increase in the unemployment rate:
Unemployment generally affects lower-income individuals more than higher-income individuals. If a large portion of the population becomes unemployed, income inequality may increase, causing the Gini coefficient to rise. However, the effect is often not as significant as other factors, especially if there are policies in place to support the unemployed. - b. An increase in the wages of the bottom 10% income individuals:
If the wages of the poorest individuals increase, income inequality would decrease, leading to a lower Gini coefficient. This would improve income distribution, so it is not likely to raise the Gini coefficient. - c. An income tax system that taxes the rich more than the poor (i.e., a progressive tax system):
A progressive tax system redistributes wealth from the rich to the poor, reducing inequality. As a result, the Gini coefficient would likely decrease, not increase, since wealth would be more evenly distributed. - d. An increase in number of top 1% (income) individuals moving abroad from the home country:
When high-income individuals (the top 1%) leave the country, the distribution of wealth within the country becomes more unequal. If the wealthiest individuals take their resources with them, the remaining population becomes poorer in comparison. This would increase income inequality, thus raising the Gini coefficient.
In conclusion, option d is the most likely to increase the Gini coefficient as the departure of high-income individuals would leave the wealth distribution more skewed.