A Theory of Earnings Distribution by Robert von Weizsäcker

By Robert von Weizsäcker

An figuring out of the origins of gains distribution is of principal significance for any public coverage which has the purpose of fighting fiscal inequality. This e-book attempts to supply a few theoretical foundations that can function a rational foundation for such guidelines. The strategy, strongly inspired through human capital idea, is mainly novel in that it allows person analyses at 3 interconnecting degrees of aggregation utilizing an analogous simple 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 fiscal interpretations of empirical findings and identifies numerous coverage conflicts. It additionally addresses the query of ways alterations among people are reworked into source of revenue adjustments.

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Sn can be defined as the fraction of the fixed given market time MA (cf. assumption (1)) which is employed in period n explicitly for the production of additional human capital. 25 This interpretation clarifies the neutrality assumption (6) embedded in (14) and (15). It must be remembered that the qualitative characteristics of the optimal earnings path derived below do not derive from the Cobb-Douglas production function as such, but purely from the fact that Qn is a homogeneous production function with decreasing returns to scale.

19 If the fraction of the existing human capital stock, Ko, which is diverted for investment purposes in earnings period 0, is represented by s0, then the earnings actually realised in the period 0 amount to: If the direct 20 education costs are:PD 0 , where Do stands for the collection of goods and services purchased in period 0 and P designates the price per unit of D, then the disposable earnings of the individual in working period 0 are RK0(l — s 0 ) — PD0. It is this variable which forms the basis of the economic model.

Note, however, that these approaches do not establish any connection at all with income distribution. The human capital stock represents a measure of'labour' in homogeneous efficiency units; more on this, later. This assumed homogeneity has been confirmed empirically, most recently by Carliner (1982, pp. 28, 31). For a relaxation of this assumption, see Wallace and Ihnen (1975) and (in a rather different context) Lee (1981). The existence of a capital market of this kind also naturally provides a foundation later for calculating present values.

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