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+---
+title: "Lecture 7 - Inequality"
+type: slides
+week: 7
+source_path: "/Users/ericvandusen/Documents/Data88E-ForTraining/F24LS/Lecture 7 - Inequality.pptx"
+---
+
+## Slide 1: Data 88E: Economic Models
+
+- Lecture 7: Inequality
+
+## Slide 2: Announcements
+
+- Assignments
+  - Project 2 underway Use Ed megathreads and office hours if you have questions.
+  - Lab 6 will be released, it’ll be due before next class
+
+## Slide 3: What about A - Total Factor Productivity
+
+- Lab 4 and Proj 2 talk about A
+- A theoretical Model of a production - a term for productivity
+- And outcome of an estimation ( Intercept term)
+- Growth economics is a whole field of Macroeconomics
+- A should grow over time ( accumulation of productivity)
+
+## Slide 4: Lab 5 three models of Utility
+
+- Mathematical formulations to represent  assumptions about Utility
+- Complements - Utility comes from combination
+- Substitutes - Utility comes from either good equally
+- Eg Cobb Douglas - somewhere in between
+
+## Slide 5: Lab 5 postscript
+
+## Slide 6: Agenda
+
+- Why Inequality
+- Measuring Inequality
+  - Lorenz Curve
+  - Gini Coefficient
+- Income Inequality Historically
+- Income Inequality Internationally
+- Textbook Chapter has code for most visualizations in class today
+- Data Visualizations - From Econ Profs Saez and Zucman
+- Let’s explore these together
+- We have a few website data demos - find them either through the website or through opening this slide deck and following the links
+
+## Slide 7: Why income inequality matters
+
+- Further reading
+
+<details><summary>Speaker notes</summary>
+
+P
+
+</details>
+
+## Slide 8: Alesina and Perotti - 1996
+
+## Slide 9: How does income inequality look like?
+
+- Dollar Street Demo
+- https://www.gapminder.org/dollar-street
+- 458 families in 66 countries, with 43971 photos
+- Go to Dollar Street and find one the following:
+- How do people cook?
+- Live?
+- Brush their teeth?
+- Wash hands?
+- Worship?
+- Dream of having?
+- Talk in pairs:
+- How is a photo different than a data point
+
+<details><summary>Speaker notes</summary>
+
+P
+
+</details>
+
+## Slide 10: (untitled)
+
+## Slide 11: Income vs Wealth
+
+- Income - Amount of money you make during a specified time frame
+  - This is what we’ll focus on today
+  - All of our analysis today will be pre-tax!
+- Wealth - total value of assets - liabilities
+  - Assets: real estate, securities, cash
+    - Luxuries: Antiques
+    - Intangible: patents, copyrights, etc
+  - Liabilities: mortgages, loans, etc
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 12: Measuring Income Inequality
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 13: Lorenz Curve
+
+- Rank every person in order by how much income
+- ( rank each bin of the population - eg decile = 10%)
+- X axis - income percentile
+- Y axis -  at the Xth percentile, share of combined income for everyone below the Xth percentile
+- For any point (x,y) on the Lorenz curve, we can say that “the bottom x percent own y% of the income”.
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 14: An example
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 15: An example
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 16: An example
+
+- Just percentiles
+- From the data
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 17: An example
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 18: Conditions of the Lorenz Curve
+
+- (0,0) and (1,1) on the curve
+  - (0,0): 0% of the households own 0% of the total income
+  - (1,1): 100% of the households own 100% of the total income
+- Slope is always increasing (convex function, second derivative > 0)
+  - X-axis is based on income percentile, which sorts households in ascending order of income
+  - E.g. the household at the 1st percentile will earn less than the household at the 2nd percentile. Hence, the change in total income % at the 2nd percentile must be greater than the change in total income at the 1st percentile
+  - We can apply this logic to every percentile!
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 19: Line of Perfect Equality
+
+- What would the Lorenz curve look like if our economy was perfectly equal?
+- Hint: everyone has the same income!
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 20: Line of Perfect Equality
+
+- Since everyone has the same income:
+- 1st percentile & under owns 1% of income
+- 2nd percentile & under owns 2% of income
+- …
+- 100th percentile & under owns 100% of income
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 21: Which country has more inequality?
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 22: Which country has more inequality?
+
+- Bottom 10% own:
+  - 2% in Country1
+  - 3% in Country2
+- Bottom 50% own:
+  - 23% in Country1
+  - 27% in Country2
+- Top 10% own:
+  - 100-75=25% in Country1
+  - 100-81=19% in Country2
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 23: Which country has more inequality?
+
+## Slide 24: Which country has more inequality? (II)
+
+## Slide 25: Which country has more inequality? (II)
+
+- Bottom 10% own:
+  - 2% in Country1
+  - 3% in Country3
+- Bottom 50% own:
+  - 23% in Country1
+  - 25% in Country3
+- Top 10% own:
+  - 100-75=25% in Country1
+  - 100-73=27% in Country3
+
+## Slide 26: Which country has more inequality? (II)
+
+## Slide 27: Motivation for the Gini Coefficient
+
+- The previous example highlights an ambiguity with directly using the Lorenz Curve as a measure of income inequality.
+- To address this, we turn to the Gini Coefficient
+
+## Slide 28: Gini Coefficient
+
+## Slide 29: Gini Coefficient - Using Calculus
+
+## Slide 30: Gini Coefficient - Using Calculus
+
+- In the homework, you will empirically apply a Lorenz curve function to different countries, and use that to compute the Gini coefficient!
+
+## Slide 31: Gini Coefficient - Intuition
+
+- What is the Gini coefficient if the economy is perfectly equal?
+- What is the Gini coefficient if the economy is completely unequal?
+
+## Slide 32: Gini Coefficient - Intuition
+
+- What is the Gini coefficient if the economy is perfectly equal?
+- Since Lorenz curve = Line of equality, A = 0. Hence, Gini = 0.
+- What is the Gini coefficient if the economy is completely unequal?
+- We can imagine that complete inequality entails 1 person owning all the income. Hence, The area of B is minimized to be essentially 0. Hence, Gini = 1.
+
+## Slide 33: An Aside - Lab 6
+
+- https://www.tandfonline.com/doi/ref/10.1080/02664768700000032
+
+## Slide 34: Lab 6 - and Sympy can do Integration as well!
+
+## Slide 35: Gini Coefficients Around the World
+
+- Sweden: 0.27
+- India: 0.35
+- Singapore: 0.46
+- Canada: 0.34
+- Kenya: 0.48
+- United States: 0.42
+- Most Equal: Liberia, Afghanistan, Iraq
+- Most unequal: South Africa, Haiti, Botswana, Namibia
+- OECD Data
+
+## Slide 36: OECD table -
+
+- https://data.oecd.org/inequality/income-inequality.htm
+
+## Slide 37: Summary of the Gini index
+
+- The Gini coefficient is a good measure for the magnitude of income inequality, allowing us to easily compare income inequality across countries.
+- Typically, Gini coefficients range between 0.25 and 0.5
+- Computing the Gini coefficient is quite complicated: comprehensive income data may not always be collected
+- What about wealth inequality?
+
+## Slide 38: Lecture Notebook 1
+
+## Slide 39: Income Inequality Historically
+
+## Slide 40: Factors that Impact Income Inequality
+
+- Key factors and alternative causes
+  - Top Marginal Tax Rates
+  - Unemployment Rates
+  - Population Growth
+- Trends
+- Policy implications
+- Notebook for the following slides is the Notebook for the textbook chapter!
+
+## Slide 41: Historically - Lorenz Gini can be hard to come by
+
+- Simplify
+- Percent of Income to bottom 50%
+- Percent of Income to top 10%
+- Percent of Income to top 1%
+
+## Slide 42: US Income Inequality (Raw Data)
+
+- Percentile
+  - Range of income bracket
+- Income share
+  - Some have values, some are nan
+  - Why are some nan?
+
+## Slide 43: US Income Inequality (Raw Data)
+
+- Percentile
+  - Range of income bracket
+- Income share
+  - Some have values, some are nan
+  - Why are some nan?
+    - Data wasn’t being collected
+
+## Slide 44: US Income Inequality (Cleaned Data)
+
+## Slide 45: US Income Inequality Graphed
+
+## Slide 46: (untitled)
+
+## Slide 47: (untitled)
+
+## Slide 48: (untitled)
+
+## Slide 49: Top Marginal Tax Rates
+
+- Tax on portion of income above a certain income level
+- Follows progressive taxation
+  - The more income you earn, the higher the % tax rate will be
+- Possible solution to reduce income inequality?
+- Formula using 2019 Joint Income Taxes
+  - Base + Tax Percentage \* (Total Income - Maximum of Lower Bracket)
+- Maximum of Bracket
+- Base
+- Tax Percentage
+
+<details><summary>Speaker notes</summary>
+
+In general, you will pay a lower tax rate for your first X dollars, and a higher rate for dollars earned over X.
+
+</details>
+
+## Slide 50: Top Marginal Tax Rates and Income Inequality
+
+- Is there a relationship?
+
+## Slide 51: US Income Inequality Trends
+
+- Top 1% Share
+  - Decreases from 1910 - 1970s
+  - Increases from 1970s - present
+- Top 10% Share
+  - Increases from 1910 - 1930
+  - Decreases from 1930s - 1970s
+  - Increases from 1970s - present
+- Bottom 50% Share
+  - Starts at 1960s
+  - Increases a bit
+  - Decreases from 1970s - present
+
+## Slide 52: US Policies 1910s - 1970s
+
+- Income Inequality Decreasing
+- 1910s policies
+  - Top 1% started contributing to taxes to make up for reduced revenue from high tariffs
+  - Top marginal rate started to increase from 7% to 73%
+- Great Depression
+  - Top marginal tax rates increased to 94% by 1944
+- Great Compression (40s to 70s)
+  - Before the Great Depression, the top 1% had ~20% of total income
+  - During the Great Depression, the top 1% had ~15% of total income
+  - For 10 years after, the top 1% had below 10% of total income
+  - For 30 years after, the top 1% had ~8% of total income
+
+## Slide 53: US Policies 1970s - Present
+
+- Income inequality Increasing
+- 1970s - High unemployment and inflation, low growth
+- Government took action
+  - Reduced marginal tax rates (from 70% to 38.5%)
+  - Deregulated corporate institutions
+  - Unfriendly to labor union memberships (membership decreased by half within 30 years)
+- The share for the bottom 50% decreases and share for the top 1% increases
+- Financialization
+
+<details><summary>Speaker notes</summary>
+
+Economic Recovery Tax Act of 1981 by Reagan
+
+</details>
+
+## Slide 54: Summary of Income Inequality
+
+- Between 1910s and 1970s, income inequality decreased. Between 1970s and the present, income inequality is increasing
+- There is an inverse correlation between top marginal tax rates and income inequality
+- Other key factors of income inequality are unemployment rate and population growth
+- Income inequality is increasing around the world
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 55: Compare US states?
+
+- https://wid.world/country/california/       https://wid.world/country/new-york/
+
+## Slide 56: Realtime Inequality Demo
+
+- Realtime Inequality
+- Methodology
+
+<details><summary>Speaker notes</summary>
+
+P
+
+</details>
+
+## Slide 57: Github!
+
+## Slide 58: Realtime Inequality
+
+- Income Growth in the US (1976-present)
+- Wealth Growth in the US (1976-present)
+- Disposable Income Growth (COVID-19)
+- Real Factor Income Growth (COVID-19)
+- How can data be used to motivate
+- Public Policy?
+
+<details><summary>Speaker notes</summary>
+
+P
+
+</details>
+
+## Slide 59: Tax Justice Now Demo
+
+- Tax Justice Now
+
+## Slide 60: Tax Justice Demo
+
+- Do one of the following:
+- Make your own tax plan
+- or
+- Compare proposed tax plans
+- What do you think has the greatest impact creating a truly progressive tax system? What is the effect of a wealth tax? What’s the impact on tax evasion? Any other thoughts?
+
+## Slide 61: Income Inequality Internationally
+
+Lecture Notebook 7.2
+
+## Slide 62: Unemployment Rates and Inequality
+
+- Positive correlation between income inequality and unemployment rates
+- Certain groups are vulnerable to unemployment in countries with high income inequality
+  - young workers
+  - low-skilled workers
+  - workers who had been out of work for a long time
+  - Why?
+    - Employers prefer skilled workers with relevant experience
+- “Unemployment accounts for a large part of the increase in earnings inequality that this country experienced between 1991 and 1998”
+- Martín González (Universidad Torcuato Di Tella) and Alicia Menendez (Princeton University)
+- Simulate wages across employed and unemployed over time
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 63: Unemployment Rates
+
+- Countries with notable unemployment rates
+- Brazil (53.9)
+- Europe
+- US
+- Russia
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 64: Population Growth and Inequality Discussion
+
+- How does population growth affect economic inequality?
+- Growth Phase ( 20th Century)
+- Strong correlation between a country’s population growth (measured by birth rates) and its income inequality
+  - University of Toronto’s Marijn Bolhuis and University of Oxford’s Alexandra de Pleijt
+- Wealth Phase ( 21st Century)
+- Finds that low birth rates, rather than high birth rates, are causing today’s income inequality.
+  - With lower birth rates, fewer children per couple are being borne, so these children get more of their parents’ inheritance.
+  - Thomas Piketty (Economics Professor at  London School of Economics)
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 65: Population Growth
+
+- Most countries had a high population growth between 1-2% during the 1980s
+- Effects can be seen in the 90s
+
+<details><summary>Speaker notes</summary>
+
+E
+
+</details>
+
+## Slide 66: World Inequality Database Demo
+
+- Data from the World Inequality Database (co-directed by Berkeley Economics Professors Emmanuel Saez and Gabriel Zucman)
+- Data collection methodology
+  - Fiscal
+  - Survey
+  - National accounts
+- Compared to
+  - Self-reported survey data
+- Why is relying on just self-reported survey data unreliable?
+
+<details><summary>Speaker notes</summary>
+
+P
+
+</details>
+
+## Slide 67: World Inequality Database Demo
+
+- Data from the World Inequality Database (co-directed by Berkeley Economics Professors Emmanuel Saez and Gabriel Zucman)
+- Data collection methodology
+  - Fiscal
+  - Survey
+  - National accounts
+- Compared to
+  - Self-reported survey data
+- Why is relying on just self-reported survey data unreliable?
+  - Non-response bias from the top income bracket
+  - Limited time span
+
+## Slide 68: Your turn! Go to one of the following:
+
+- WID - World Inequality Database (Income Share of top 10%)
+- WID - World Inequality Database (Wealth Share of top 10%)
+- WID - World Inequality Database (Carbon Emissions Share of top 10%)
+- WID - World Inequality Database (Female Labor Income Share)
+
+## Slide 69: International Income Inequality Data
+
+- Top 10% income bracket
+
+## Slide 70: International Income Inequality Graphed
+
+## Slide 71: International Income Inequality Trends
+
+- Global inequality is rising worldwide
+- What explains Russia’s trend?
+
+## Slide 72: International Income Inequality Trends
+
+- Global inequality is rising worldwide
+- What explains Russia’s trend?
+  - Income inequality increased around 1991
+  - Fall of USSR
+  - Former USSR officials acquired state property
+  - Increase in Russian oligarchs with mass privatization
+
+## Slide 73: US versus Europe Income Inequality
+
+## Slide 74: Income Gini for China
+
+- https://www.statista.com/statistics/250400/inequality-of-income-distribution-in-china-based-on-the-gini-index
+
+## Slide 75: Income Gini for Mexico by State
+
+- https://www.statista.com/statistics/1040573/income-distribution-gini-coefficient-mexico-state/
+
+## Slide 76: Wealth Inequality in OECD
+
+- https://www.oecd-ilibrary.org/docserver/7e1bf673-en.pdf
+
+## Slide 77: Median Income vs GDP per Household
+
+## Slide 78: Compensation / GDP
+