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Funding pensions: methods and risks

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vital statistics

The distribution of income

In this regular column, Peter Smith discusses some commonly used economic statistics and offers guidance on how to use them. The focus here is on the way in which income is distributed between groups in society, and how to analyse it

Economic growth is a key macroeconomic indicator for any society, as it tells us the extent to which the wellbeing of a population is able to improve through time as the supply of resources expands. In the September issue of ECONOMIC REVIEW, I discussed economic growth and the way in which it can be measured by calculating the rate of change of real GDP. However, it is not enough to know that GDP is growing through time; another important question is who in society benefits from the additional resources being provided.

There is some inequality in every society. Individuals differ, and there are many reasons why some individuals and households will be better off than others. Governments may wish to intervene to protect the least well-off by redistributing resources from rich to poor, whether through providing transfers (benefits) or through progressive taxation. However, there will never be a society in which every individual receives exactly the same level of income. The question is how much inequality is acceptable to a society, and how far the government should intervene in order to pursue equity.

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