how do i figure this out? if all incomes were equalized by government taxes and transfer payments, how much would the average household in each income quintile gaine (via transfers) or lose (via taxes)?
Hummm, for real or as a hypothetical exercise. The math would be the same for both. However, for real you would need to find and income distribution of the US. And trust me, that could be a real challenge.
That said hypothetically -- first compute the overall average income (Y). Next, compute the average income in each quintile class. (y1, y2, ... y5). Thus, average taxes in each quintile are positive amounts of yi-Y. Transfers are positive amounts of Y-yi.
To figure out how much the average household in each income quintile would gain or lose through government taxes and transfer payments, you need to follow these steps:
1. Find the overall average income (Y) for the population you're analyzing. This could be the average income for a specific country or region.
2. Determine the average income in each income quintile. An income quintile divides the population into five equal groups based on income, with the lowest 20% in the first quintile, the next 20% in the second quintile, and so on. Calculate the average income (y1, y2, y3, y4, y5) for each quintile.
3. Calculate the difference between the average income in each quintile and the overall average income (Y). This difference represents the average taxes paid by each quintile. If yi-Y is positive, it means the quintile is paying more in taxes. If it is negative, it means the quintile is receiving tax benefits.
4. Calculate the difference between the overall average income (Y) and the average income in each quintile (yi). This difference represents the average transfer payments received by each quintile. If Y-yi is positive, it means the quintile is receiving more in transfer payments. If it is negative, it means the quintile is contributing to the transfer payments.
Keep in mind that this calculation assumes all incomes are equalized by government taxes and transfer payments. In reality, income distribution and government policies can vary, making the actual calculation more complex. Additionally, obtaining accurate income distribution data can be challenging, as you mentioned.
If you have access to income distribution data and average income values, you can apply these steps to quantify the gains or losses for each income quintile.