Equality of Income Distribution and Consumption Expenditures
rrHE economic evaluation of public policy 1 must be based to a considerable extent upon the way it influences the distribution of income. This is especially true for such matters as labor legislation, agricultural subsidy payments, the tax structure, the tariff structure, and public works programs. Accordingly, a systematic examination of the effects of changing income distribution seems greatly to be desired. One aspect of this problem is considered in the following analysis: the effects of the equality of income distribution upon consumption expenditures. More specifically, our concern is with the effects of income distribution upon (a) the percentage of disposable personal income spent, and (b) the allocation of the expenditures which are made. Review of theories. Thus far two theories have been advanced regarding the effects of equality of income distribution upon consumption expenditures: the comparative propensity to consume theory and the emulation theory. The comparative propensity to consume theory holds that the effect of a change in equality of income distribution may be analyzed by comparing the relative marginal propensities to consume of those incurring the income decrease and of those receiving the corresponding income increase. Thus, a reasonably symmetrical equalizing of income distribution presumably would tend to raise the aggregate consumption function for the economy as a whole, since the nch are believed to have a lower marginal propensity to consume than the poor -and vice versa.' Furthermore, it should cause the allocation of what expenditures are made to change as follows: food to increase. clothing and transportation to decrease, and shelter to remain nearly constantand vice versa.2 Veblen's emulation theory holds that people in any given socio-economic class tend to have as their material standard of living the goods and services actually consumed by the next higher socio-economic class.3 For this reason, it is argued, the spread between the standard and plane4 of living for consumers in the aggregate (hence, the pressure on them to spend) is a function of the income differences between the various socio-economic classes in the economy. From this it follows that a reasonably symmetrical equalizing of income distribution should tend to reduce the income disparity between the various socio-economic classes, thus reducing the spread between their standards and planes of living (reduce the pressure on them to spend), and consequently cause the consumption function for the economy as a whole to fall.5 The opposite reaction logically should occur as incomes become less equally distributed, but only for moderate decreases in income equality. Too great an income disparity between the various socio-economic classes presumably would cause them to lose
- DOI
- 10.2307/1925561
- Volume
- 38 (1)
- Pages
- 81
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