How does the distributional role of the state (in income Essay

How does the distributional role of the state (in income redistribution and the alleviation of poverty) conflict with the objective of economic efficiency - Essay Example The market system does not guarantee that everyone will have the same opportunity to accumulate wealth and once an inequality in the distribution of wealth arises it tends to be self perpetuating because wealth can be inherited. (SJ Grant 2000). It is a general characteristic of developing countries that income is unevenly distributed. Partly, because the income generating assets especially land are owned by the few. As a result we can see great extremes of both the rich and the poor. In 1998 for example the World Bank figures show that in Peru the poorest 20% of the population had only 4.4percent of total household income, while the richest 20% had 51.3% of total household income. These great extremes of the rich and the poor mean that in developing countries deprivation is very common. The distribution of income can be examined in two main ways .One is by examining the distribution of income between the factors of production. In this case the wages account for the largest percentage but the share of income has fallen over the years. Another way of examining the distribution of income is to examine how disposable income is distributed. Disposable income mainly consists of incomes that are derived from factor services together with various forms of cash benefits, i.e. social security payments etc . Minus direct taxes i.e. income taxes and national insurance contributions. Two very vital elements in the income of households of distribution are the investment income and the income derived from self employment. The unequal distribution of wealth is a major cause of the inequality in the distribution of income. ‘Gross Inequalities in the distributions of income and wealth lead to feelings of ‘unfairness’ because , quite apart from creating inequalities in living standards , they lead to inequalities of opportunities in living standards ,they lead to inequalities of opportunity. The wealthy can buy