DMPQ- Explain the following: a) GINI INDEX b) LAFFER CURVE

GINI INDEX: The Gini index is a simple measure of the distribution of income across income percentiles in a population. A higher Gini index indicates greater inequality, with high income individuals receiving much larger percentages of the total income of the population. Global inequality as measured by the Gini index increased over the 19th and 20th centuries, but has declined in more recent years. Because of data and other limitations, the Gini index may overstate income inequality and can obscure important information about income distribution.

 

 

Laffer Curve:       The Laffer Curve describes the relationship between tax rates and total tax revenue, with an optimal tax rate that maximizes total government tax revenue.

If taxes are too high along the Laffer Curve, then they will discourage the taxed activities, such as work and investment, enough to actually reduce total tax revenue. In this case, cutting tax rates will both stimulate economic incentives and increase tax revenue.

The Laffer Curve was used as a basis for tax cuts in the 1980’s with apparent success, but criticized on practical grounds on the basis of its simplistic assumptions, and on economic grounds that increasing government revenue might not always be optimal

 

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