Reasons for Differences in Living Standards & Income Distribution
- There are many reasons that cause differences in living standards & the income distribution within & between countries
- Economic system: a mixed economy provides the highest quality of living standards. There is much debate on how much government planning there should be. However, countries in Scandinavia with a more mixed economic system score very highly on HDI & living standards. With completely free markets (unchecked capitalism), wealth inequalities increase exponentially. With planned economies, shortages abound
- The Government: the values of a government influence their economic agenda, tax system & government spending. Governments are more easily held accountable by the citizens in countries with a low level of corruption
- Corruption: significantly undermines quality of life & the standards of living
- Tax system: most countries have a progressive tax system for corporate & personal income tax. However, there can be many indirect taxes which completely change the quality of life for the poorest households
- Productivity levels: differences in skills result in difference in productivity & higher levels of productivity are rewarded with higher wages, which leads to a better standard of living
- Size of the population: more densely populated countries or cities face more challenges. A larger population can mean higher tax revenues but at the same time, government expenditure on services is spread across more people often resulting in less government spending/capita
- Education levels: These directly influence productivity & wages
- Inflation: Tends to impact poorer households more as any increase in general price levels represents a larger absolute value of their wages when compared to wealthier households
- Regional differences: Many countries have historically poor areas, as well as wealthier ones. Poverty in certain regions can be much higher
- Personal freedoms: religious, economic, personal, political & civil freedoms improve the quality of life within a nation
