Income Distribution Theories

The distribution of income refers to how the total income of an entity such as a country or the world is distributed among elements within it, such as people, groups of people, inputs or factors of production, or countries. Theories of income distribution seek to analytically examine how income distribution is determined. For the examination of income distribution within a country, economists focus on how income is distributed either between factors of production, such as labor, capital, and land, which is called the functional distribution; or between individuals, called personal income distribution. Within the latter, a distinction is drawn between the concept of vertical inequality, which refers to how unequally income is distributed among different income groups (e.g., the rich and the poor), and horizontal ...