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Income Distribution


Income Distribution refers to apportionment of total national income of a country among all its individuals and families. The principal objective of income distribution policy of a government is to minimize the absurd inequality of income of its citizens, which arises mainly due to differences in their incomes from a variety of sources. The three main categories of income in a market economy are (a) salaries, wages and remuneration including a part of earnings in self-employment; (b) incomes from assets, including rent and profit from land and equipment, and interest from investment or lending; and (c) supern profits earned by some firms and other incomes. These constitute the sources of primary income distribution. Secondary income distribution is based on primary distribution of income modified by direct cash transfers such as taxes and social security payments. And tertiary income distribution is the secondary distribution modified further by public sector activities such as the regulation of prices and the provision of public goods and services.

The income distribution system is divided in various categories considering the source of income and the owner of income. The source based income distribution is when the income is distributed on the basis of elements of production like land, labour, capital and productivity of the organisation concerned. On the other hand, the owner-based income is distributed between two social units, a particular person and a family.

In Bangladesh, like many countries of the world, the distribution of income is measured indirectly on the basis of household income and expenditure, traditionally with the help of Gini coefficient. A household is defined as a dwelling unit where one or more persons live and eat together with common cooking arrangement. Persons living in the same dwelling but having separate cooking arrangements constitute a separate household. Household income includes (a) wages and salaries, pensions, contributions and professional fees earned by household members; (b) material return in cash or kind earned by them in exchange for goods and services; (c) their income from interest and dividends; (d) their earnings from agricultural activities, business, commercial and industrial establishments, and land and other property; (e) gifts and assistance; and (f) insurance benefits.

Household or family expenses include expenditure for purchasing consumer goods, essential commodities and services required for a family. Other expenses include income tax, other taxes and revenue, fee, pension, contribution related to social security, insurance, premium, gift and other transfer charges.

Calculated for household incomes in East Pakistan and Bangladesh, the Gini coefficient was 0.33 in 1963-64 and 0.37 in 1981-82. The value of the coefficient varied in urban and rural areas and the variation had widened over time. In terms of household incomes, it was 0.399 in urban and 0.334 in rural areas in 1966-67, and the corresponding figures in 1995-96 were 0.444 and 0.384. There had been little difference between the Gini index of income and that of consumption expenditures in Bangladesh up to the end of the 1980s, which may be attributable largely to the low rate of savings and partly, to considerable underestimation of incomes and overstatement of the consumption expenditures.

In Bangladesh, the inequality of income has raised significantly in the 1990s. According to some estimates, the share of the top 5% high-income group households was 23.62% of the total incomes of all households compared to in 1995-96 18.85% in 1991-92 and 18.30% in 1983-84. On the other hand, the share of the bottom 5% low-income group households was 0.88% in 1995-96, 1.03% in 1991-92 and 1.17% in 1983-84. In 1995-96, the share of the bottom 10% low income group households was 2.24% of the total income of all households while the top 10% high-income group families claimed 34.68%.

The inequality in income distribution in Bangladesh as well as the number of people below poverty line increased over time largely as a consequence of the land tenure system and uneven access of the population to education, skill development and employment, and gender discrimination. However, although inequality in income distribution continued to increase, thanks to the introduction of high yielding varieties of different crops and the efforts of various government agencies and non-government organisations in poverty alleviation, there had been some improvements in poverty situation since the mid-1980s. Population below the poverty and absolute poverty lines measured in terms of calorie intake per person per day were 47.5% and 25.1% respectively in 1995-96 compared to 62.6% and 36.8% in 1983-84.

During 1970 - 81, the rates of growth of GDP and of inequality in income in Bangladesh were 4.1% and 0.37% respectively. The comparative figures were 1.9% and 0.43% in Argentina, 6.2% and 0.45% in the Philippines, 7.2% and 0.39% in Thailand, 7.8% and 0.42% in Indonesia, 7.8% and 0.49% in Malaysia, 8.4% and 0.60% in Brazil, and 6.5% and 0.52% in Mexico. There is practically no linear relationship between income inequality and per capita income or the rate of economic growth of a given country. Despite the fact that GDP of Bangladesh experienced a more than forty times increase between 1973 and 2000, the inequality in income distribution and the poverty level had not proportionately reduced.

The GDP growth rate of Bangladesh was about 6% during 2000-2010, which was much lower, in the 1990s. This progress specifically contributed remarkably to raise the per capita income. It also became very helpful to improve the standard of life of the people through income distribution. But, despite all these development, the gap in income between the top and the low-income people in Bangladesh widened in the first decade of 21st century. According to a survey of Bangladesh Bureau of statistics (BBS), Bangladesh is one of the countries of the world having the highest inequality rate in income distribution. Its GDP growth rate is upward, but the income distribution situation is worsening gradually. As a result, the gini-index of income in equality rose to 0.467 in 2005 from 0.451 in 1995. It indicates increasing trend of in equal income of rich people, who are basically the beneficiary of new production process. If anybody reviews the findings on inequality in income of Bangladesh revealed in the BBS survey, 2005 it indicates that the share of the bottom 5% low-income group households, which was 0.93% in 2000 farther reduced to 0.77 later in 2005. On the other side, the share of the top high-income group households which was 28.34% in 2000 reduced to 26.93 in 2005, but the reduction rate is much lower than that of the bottom 5% low income group households. This trend of income distribution in both rural and urban areas is similar.

It has been observed that the share of top 20% high-income group households, which was 52 percent in 2000, remained unchanged in 2005. However, the share of bottom 20% low-income group households was 6.17% in 2005. It is noted that despite the concerted efforts took up jointly by different ministries of the government, banks, financial institutions and non-government organisations, to alleviate poverty a long time back, could not achieve any significant progress. The trend of income distribution process was in favour of rich and mid income group households during the last decade as well as it went against the interest of low-income group people. It is believed that the situation has been created due to the relentless effort of the government and the market to ensure marginal profit for mid and low-income group household and the prevailing corruption in various sectors for which the poor are totally being deprived. [Abul Kalam Azad and Abdus Samad Sarkar]