Distribution of Income

A fair and equitable sharing of the economic development of the country can be seen from the distribution of income in the country. Distribution of income received by the people in a country are intended to improve the level of people who are still living in poverty. The distribution of income is also income distribution as a whole, in the narrow sense of the different levels of income between households or decrease social inequalities.

Income distribution according to economic experts can distinguish among others:

1. The distribution of personal income.

Individual income distribution indicates the distribution of income received by individuals in the community. The focus in this distribution model that is how much revenue received by a person, do not see techniques or ways by individuals and households to obtain its income, number of household members who are looking for income to meet household needs or whether the income derived from employment or other sources such as flowers, gifts, royalties, gains or inheritance. The location and sector revenue sources were also ignored.

2. Functional income distribution.

Functional income distribution describes the proportion of income received by each factor of production. Each of the factors of production receive rewards in accordance with the distribution of national production. Income distribution is based on the owners of production factors related to the revenue growth. Revenue growth in a society that is based on the ownership of production factors can be grouped into two kinds:

a) Revenues for the work in the form of wages or salary and the amount depends on the level of productivity.

b) Income from other sources such as rents, profits, royalties, interest, gift, or inheritance.

Government programs in the framework of the distribution of income are generally divided in:

1. Transfer Cash.

 This is a form of cash transfer equalization method with instruments of money or income received. Various cash transfers, among others:

a)     Negative Income Tax.

 Negative income tax is a government policy that resulted in a large transfer payments received by the public by the poverty level of the community. In other words, the poorer the community, the greater the transfer payments received. The program is not implemented in Indonesia.

The impact of this program includes:

§ increase the laziness of society to work because getting adequate income even without working.

§ The emergence of the notion of injustice for the people who have relatively high income that the program is considered not appreciate the hard work.

§ Reducing work incentives

§ Reducing the level of  wages or creation of welfare cost.

§ The occurrence of tax incidence.

b)    Demo-grant

 Demo-grant is a form of cash transfers based on specific demographics. Examples of these programs one of which is the direct cash assistance. This program is the most widely practiced in Indonesia. Effects of the implementation of this program are as follows:

• Reduce work incentives

• The welfare costs of reducing the level of wages

• The occurrence of tax incidence.

c. Wage subsidies

Wage subsidy that is by increasing net wages received by workers. Such programs can be seen from the benefits received by workers in all sectors especially civil servants. The impact of this program includes:

• Improve work incentives

• Reducing the cost of welfare.

2. Transfer of goods.

The transfer of goods or transfer programs is a transfer program with the form of physical goods are transferred is not money. The downside of this program is the transfer recipient is not free in spending transfer. While the advantage of increasing the consumption of the goods are transferred, causing the external benefits the manufacturer of the goods are transferred. It also adds to the amount of tax paid to the state on the external benefits.

3. Program of employment opportunities.

The program is a form of employment opportunity program income distribution through employment. One example of this program is the National Program for Community Empowerment (NPCE). This program is the best program among other programs because of the presence of employment will increase real investment that will reduce unemployment and increase GDP. But on the other side of this program will reduce work incentives and causing huge welfare costs so that the level of wages will be reduced and the supply of labor in the private sector will be reduced. In addition to the tax rate for manufacturers will be increased.