Question

Taxes and transfers in the United 'States

Select one:
a. cancel out so that the Lorenz curve does not shift.
b. shift the Lorenz curve outward.
c. shift the Lorenz curve inward at low incomes, outward at high incomes.
d. shift the Lorenz curve inward.

Answer 1

The Lorenz curve shifts inward due to taxes and transfers because they help to redistribute income and decrease inequality, moving the curve closer to the line of perfect equality.

Step-by-step explanation:

The question asks about the effect of taxes and transfers on the Lorenz curve in the United States. The correct answer is that they shift the Lorenz curve inward. This is because taxes and transfers are designed to redistribute income, which typically results in a reduction of income inequality. As the Lorenz curve represents the distribution of income, with the 45-degree line indicating perfect equality, any policy that reduces income inequality moves the Lorenz curve closer to this line of equality. Over time, the Lorenz curves depicted in Figure 15.8 show that the U.S. income distribution has become more unequal, as the curve for 2013 (or 2020 in later data) is farther from the 45-degree line compared to the curve for 1980.