Income Inequality in Vietnam 2000-2010 Assignment

Income Inequality in Vietnam 2000-2010 Assignment Words: 3354

However, these economic accomplishments do not benefit everyone. In the second decade of 21st century, still there are millions of people die of hunger every day, something that human thought would have disappeared by now. Those people have no hope in a full life, no chance for education, and thus no opportunity to change their life. They live on the same planet with people who have no worries about food and only care about luxurious fashion items or high tech products.

This is the world we are living: prosperity and poverty exist at the same time, and the gap between the wealthy class and the poor class is bigger than ever. The income inequality, in particular, and social inequality, in general, have long been discussed in all levels of authority, worldwide, international or national. In Vietnam, tremendous economic growth, sadly, comes along with a sharp increase in inequality. This problem is getting worse over years, and results in many other social dilemma.

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I Nils selectmen Touches on ten Income Illustration AT Valetta Trot analyze the inequality situation in our country. Our paper will be in 3 main parts: Part 1: Literature Review Part 2: Situation Part 3: Solutions Because of the limitation of information, experience and time resources, it is unavoidable for us to make mistakes during this assignment; however we would like to express special thanks to our teacher Mr.. Lay Hang PH, who has instructed as well as provided us with invaluable assistance on completing this project.

Part 1 – Literature Review 1 . 1. Equity definitions Equity: Equity or Economic equality, is the concept or idea of fairness in economics, particularly in regard to taxation or welfare economics. More specifically it may refer to equal life chances regardless of identity, to provide all citizens with a basic and equal minimum of income/goods/services or to increase funds and commitment for distribution. There are 2 ways to define equity: Horizontal equity: providing equal treatment for all people without any discrimination.

Vertical equity: refers to the idea that people with a greater ability to pay taxes should pay more. If the rich pay more in proportion to their income, this is known as a proportional tax; if they pay an increasing proportion, this is termed a progressive tax, sometimes associated with redistribution of wealth. 1. 2. Measurements of inequality Headcount Index (H): The Head Count Index (H) is the proportion of the population whose economic welfare (y) is less than the poverty line (z).

If q people are deemed to be poor in a population of size n then H=q/n. For computing the Head Count Index, estimates AT Uninominal economic welfare Ana ten poverty Ellen are required Lorenz curve: In economics, the Lorenz curve is a graphical representation of the cumulative distribution function of the empirical probability distribution of wealth; it is a graph showing the proportion of the distribution assumed by the bottom y% of the values (although this is not rigorously true for a finite population ? see below).

It is often used to represent income distribution, where it shows for the bottom x% of shoulder, what percentage y% of the total income they have. The percentage of households is plotted on the x-axis, the percentage of income on the y-axis. It can also be used to show distribution of assets. In such use, many economists consider it to be a measure of social inequality. It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution. Points on the Lorenz curve represent statements like “the bottom 20% of all households have 10% of the total income. (see Praetor principle). A perfectly equal income distribution would be one in which every person has the same income. In this case, the bottom of society would always have of the income. This can be depicted by the straight line “y” ? “x”; called the “line of perfect equality. ” Gin coefficient: This is the most commonly used measure of inequality. The coefficient varies between O, which reflects complete equality and 1, which indicates complete inequality (one person has all the income or consumption, all others have none).

Graphically, the Gin coefficient can be easily represented by the area between the Lorenz curve and the line of equality. On the figure to the right, the Lorenz curve APS the cumulative income share on the vertical axis against the distribution of the population on the horizontal axis. In this example, 40 percent of the population obtains around 20 percent of total income. If each individual had the same income, or total equality, the income distribution curve would be the straight line in the graph – the line of total equality.

The Gin coefficient is calculated as the area A divided by the sum of areas A and B. If income is distributed completely equally, then the Lorenz curve and the line of total equality are merged and the Gin coefficient is zero. If one individual receives all the income, the Lorenz curve would pass through the points (0,0), (100,0) and (100,100), and the surfaces A and B would be similar, leading to a value of one for the Gin-coefficient. It is sometimes argued that one of the disadvantages of the Gin coefficient is that it is not additive across groups, I. . The total Gin of a society is not equal to the sum of the Gins for its sub-groups. [pick] Ethel Index: While less commonly used than the Gin coefficient, the Ethel-index of inequality has the advantage of being additive across different subgroups or regions in the country. The Ethel index, however, does not have a straightforward representation and lacks the appealing interpretation of the Gin coefficient. The I Nell Index Is part AT a larger Tamely AT measures retreat to as ten General Entropy class.

Sunsets model: A Sunsets curve is the graphical representation of Simon Sunsets’ hypothesis that as a country develops, there is a natural cycle of economic inequality driven by market forces which at first increases inequality, and then decreases it after a certain average income is attained. Part 2 – Situation of Income Inequality in Vietnam in the period from 2000 to 2012 2. 1 . Situation Inequality exists in every where, in everyday life. For examples, in Vietnam, inequality can be found in virtually every aspect, let’s say social position, educational opportunity, medical care, all of which may come from one source: income inequality.

Income inequality has long been the target of many research and study, in an effort to tackle the effects of it on other social issues. The following arguments will focus on the inequality of income distribution in Vietnam, according to Lorenz and Gin analysis. 2. 1. 1 . Income distribution among 5 quintiles I(Quintile 1)Poorest Quintile 2 I Quintile 4 Exquisite 5 149. 3 148. 73 21 . 32 14. 11 114. 41 1 12002 1 12004 1 12006 | 48. 44 121. 52 121. 48 16. 05 | 5. 85 15. 79 1 12008 149. 56 149. 15 110. 01 19. 92 110. 02 15. 18 1 12010 114. 1 114. 114. 42 19. 62 | 5. 32 120. 81 121. 2 19. 63 Table 11. 1 – Income distribution of 5 quintiles over years (%) According to the data, we can sketch Lorenz curves as follow: Year: 2002 – 2004 year 2010 As can be seen from the table and the curve, the income distribution among 5 quintiles has not changed much for the last 10 years, where the last quintile (the richest 20%) accounts for nearly a half of national income, while the poorest 20% sakes up Tort a small percentage AT 6 (2002), teen roping to let’s talk about the Lorenz curves from 2002 to 2010.

We can see that the Lorenz curve has stayed almost the same in 10 years, indicating no change in the situation of income distribution in Vietnam. As we know, Lorenz curve is an illustrator of how inequality is happening: the further Lorenz curve is from the perfect equality line, the more unequal it is. Hence, it can clearly be seen that Vietnam suffers from quite a big gap in income (high inequality). A good sign is that the income of quintile 3 and 4 (medium income) has increased, which may mean a decrease in inequality.

However, the general situation has not improved, as the Lorenz curve stays the same after 10 years. 2. 1. 2. Income distribution between rural area and urban area Income gap between rural and urban zones is a long-lasting problem for many country, but worst in developing and poor countries. In these countries, the living standard is low, leaving the poorest (who often live in rural areas) in extreme poverty, while the rich move to cities and gain even more money, making the income gap between the two areas bigger. In Vietnam, the situation, inarguably, is getting worse and worse over the last 10 years.

During this period, there have been changes to the economy: many new industrial zones and factories have been built near the cities, contributing to a raise in income for urban residents, while rural residents, mostly farmers and account for 80% of the population, have undergone a great many of hardships because of frustration in price of agricultural products. The widening gap can be seen in the table as follow: 2010 | 552. 7 12. 26 | 2002 12004 12006 12008 1 I I Income gap between urban and rural area 1347 1437. 3 1843. 0 12. 16 11059. 5 12. 09 I I Income of urban/lonesome of rural 12. 1 11. 9 1 The data in the table illustrate two trends. The first trend is that, after years, the income of urban areas has risen sharply IM comparison with that of the rural area, and the income gap is widen faster and faster as well. The other trend is that the proportion Income of urban/lonesome of rural has dropped a little bit from 2. 26 to 1. 99. However, this is not necessarily a sign that rural income coming closer to urban one. In contrast, if we look at the income gap, we can see that from 2002 to 2004, the gap was widen by 90 dong, while from 2008 to 2010, the gap increased by 216. . This Eden margin clearly proves that the situation is getting worse. Even though the average income of households may be higher, that of rich household rose even more, making the gap bigger. 2. 1. 3. Income Distribution among 8 regions of Vietnam: Generally, the regional income discrepancies, on the one hand, reflects the conditions of the geographical distribution of resources and on the other hand, reflects the level of development of each region and the economic integration of the regions together.

I en Toweling tame snows ten total monthly Income AT B regions AT our country In every two years from 2002 to 2010 (most updated data). Table 1 . Monthly Income per capita of 8 regions of Vietnam (2002-2010) The level of income inequality among 8 regions of Vietnam is lower than that between urban and rural areas. According to the most updated data of General Statistics Office (SO), throughout the whole period in consideration, the South East is the highest income area with the peak of 2,165 000 [month in 2010, followed by Just 1 ,567. 000/month of people in the Red River Delta. Although the North West also shows the upward trend in its income/capital/month, during the period, it is still the lowest income region with 740. 000/month in 2010, which is nearly equal to one third of that of the South East. 2. 1. 4. GIN coefficient The Gin coefficient (also known as the Gin index or Gin ratio) is a measurement of dispersion developed by the Italian statistician and sociologist Corrode Gin. The Gin coefficient measures the inequality among values of a frequency distribution (for example levels of income).

A Gin coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has an exactly equal income). Gin coefficient is commonly used as a measure of inequality of income or wealth. Generally, on the world, the Gin index may range from 0. 2 to 0. 6 and so does Vietnam. Table 2. Gin coefficient by urban-rural and region in Vietnam (2002-2010) From the table, we can see that the inequality in Income distribution in Vietnam is not very high but has a trend of slight increase during the period of economic growth.

Gin coefficient increased from 0. 42 (2002-2004) to 0. 24 (in 2006), 0. 434 (in 2008) and Just decreased moderately to 0. 433 (in 2010). However, each region has its own degree and trend of Income Inequality. In rural areas, the Gin coefficient rose significantly in every 2 years, meanwhile, in cities, the rend is opposite, which may mean that the situation of equal Income Distribution has received more and more concern from people in urban areas. According to the statistics, in 8 regions, the Gin coefficient seemed to rise at different levels.

In the well-developed areas such as Red River Delta and South East, the Gin coefficient increase dramatically from 2002 to 2006 and then bottomed out in the next 4 years. Meanwhile, ten clan comments In toner regions all wellness EAI a stable roles the period. 2. 2. Consequences – the measurement of "40” tonguing The inevitable consequence of income discrepancies is the social and human investment inequality. The opportunities for education of the low income group is deprived as a result, which meaner the people group may not ensure a brighter future with sufficient knowledge and skills to participate in the higher-paid Jobs.

Likewise, the lowest income group would stand fewer chances to develop themselves in terms of physical and mental areas by meaner of high – quality nutrition and amusement activities, which is deemed to contribute to adversely affect the development of people in this group. While the inequality and prices are on the rise, the impoverished group would be categorized into 20% poorest of the society. Such worse situation would then make those people exploited and social evils are foreseeable. Standard "40” (World Bank): Income of 40% poorest population 17%: relatively equal I Year 12010 114. 8 | 2004 I I Income of 40% poorest | 16. 06 | 2006 115. 7 | 2008 115. 82 114. 93 I I population Table 2. The income of 40% poorest population of Vietnam in 5 years 2002, 2004, 2006, 2008, 2010 (unit: % per year) As can be seen from the table, Vietnam belongs to the relatively unequal group with the obvious downward trend through the period. Part 3′ causes Ana recommendations Ana governmental polices Tort recycling Inequality in Income and enhancing Income Redistribution 3. 1 . Causes of income inequality in Vietnam The main underlying cause of income inequality situation in Vietnam is because in recent years, Vietnam has chosen unreasonable growth model and resource allocation mechanism.

The priorities for allocation of resources for businesses, industry and capital-consuming projects and areas with higher potential growth have created the imbalance between regions and increased inequality between the state sector and the private sector. In addition, the process of industrialization and arbitration has led to the loss of farmers’ land. In the Mekong Delta, one third of the poor is landless and the proportion of people losing land has now doubled. As a result, their main source of income is reduced sharply, making rural-urban gap increase.

Moreover, the national transition from a centrally planned mechanism to market mechanism also creates shock and damage to the working class and the poor in our country. Therefore, their limited access to the social welfare system also increases inequality. Another cause of Income Inequality in Vietnam is the "begging-giving” system (co chi© Kin Choc), unprofessional business environment, lack of transparency,.. Have created DOD conditions for speculation (land, securities, etc… ), smuggling, corruption, tax evasion. Meanwhile, a number of population have been deprived of increasing wealth and income. 3. 2.

Theories on redistribution of income 3. 2. 1 . The Pantheism (Utilitarianism) utilitarian’s Is ten consequentially ‘tentacle tenure Day wanly actions are Usage according to their anticipated results’, hence utilitarianism is a teleological theory. The classical statement of the theory of utilitarianism began in the writings of Jeremy Beneath who was a democratic reformer and focused on rights for the majority rather than the few. In Utilitarianism, Beneath stated that social welfare depends on personal welfare and equals the sum of personal welfare, which is measured by personal satisfaction, needs and wants.

W = LU +J+U+… +LLC Also, Utilitarianism suggests that income should be redistributed until: (MUM = Marginal utility) Put another word, this meaner social welfare should be equally distributed among everyone in the society. However, there may arise a problem: economic inefficiency, as the process of redistribution usually comes along with loss of resources. This meaner when the government tries to divide the "welfare cake” equally, the cakes actually turns smaller. Hence, everyone gets the same welfare, but also less.

Utilitarianism stands on the assumption that the weighted utility of the poor and the rich are the same, which is definitely wrong in reality. That’s why there are many opposition towards this theory. However, Utilitarianism is still an important theory to study. 3. 2. 2. The Maxi Min pentacle The Maxine principle is one of the central concepts in John Rails’ celebrated work, A Theory of Justice (1971). He frames his theory of Justice around the people of the original position who are covered by the veil of ignorance in the hypothetical taxation.

There comes a situation in the original position when the people have to choose among various competing alternatives. Rails believes that using the Maxine principle, the people will choose his own principle of Justice. According to this theory, the problem of income inequality can be solved by a redistribution policy, where the welfare of the poorest people in the society is maximized. Rails set the weighted utility of the poorest 1, while that of other people = 1: W = minimum (LU ,UZI… , URI) This meaner social welfare only depends on that of the poorest people in the society.

Therefore, any policy that improves the welfare of the rich but does not do anything for the poor has no effect in increasing social welfare. In opposed to the Utilitarianism, the Maxi Min principle to some extend approves of a discrimination in income of different classes in the society, and focuses on increasing the lowest level of income. For example, a person A is hired by B. B obviously has higher income than A and that leads to income inequality. If the government imposes high tax on B and transfers that tax to A to create the equal status, B may be forced to go bankrupt.

At this point, A no longer receives salary from B, but he earns subsidy from the government, which is lower than his former salary. So, the equal status is set up, but A and Bi’s welfare both decreases. Then if we apply Maxi Min principle, the government does not change the income inequality between A and B but tries to increase the income of A alone. As a result, the welfare of both A and B increases. For ten lass t 3 access, ten I energy AT Justice Ana ten discussed and widely applied. Ax Ml principle NAS Eden and enhancing Income Redistribution: 3. 3. 1 . Economic solutions

The solutions in terms of economics can be divided into 2 following groups: Credit solution: – The role of credit: In view of economics, most of social problems such as in equality, unemployment, poverty,… Could arise from these 2 reasons: * The inequality in possibility to access and use resources that bring about income among different social classes. * The redistribution system itself contains the unequal factors among the equally-dedicated people (in terms of labor expense), who enjoy the outcome differently. The commodity economy with mixed components may contain both above capabilities.

The first possibility can be illustrated through the discrepancies between urban and rural areas. The second possibility lies in the market distribution system, that is, one subject to the resources possession. Thereby, the ground for solutions to any social problem must eliminate or at least, reduce the effects of those 2 reasons. Crediting is considered a good solution to the first problem through the system of priority credit (tin dung cru it©n) and low-interest credit (tin dung cru d¤I). Priority credit is a way to gather capital to support a specific industry or region.

Low- interest credit, as the name suggests, meaner loans to particular groups of people at the interest rate lower than market one. In the process of implementation of policies related to low-interest credit, there are 2 issues that need to be thoroughly considered: * How to distribute capital to the real impoverished people: In fact, the credit policies could not cover detailed or specific household of the poor but Just be planned and implemented on the whole region or industry.