What Is Income Distribution?

Income distribution is a concept that has to do with how an available amount of income is allocated or distributed in a manner that helps to produce the most desirable results. This concept can be applied to the total economy of a nation, a smaller jurisdiction such as a state or province, and even to an individual household. In each instance, the idea is to determine how that income is currently distributed, paving the way for making adjustments that help to enhance the economic stability of the jurisdiction under consideration.

When considering the total economy of a nation, income distribution often focuses on how that income is allocated between different classes among the residents. Making this type of assessment aids in determining how the government can take steps to engage in the redistribution of wealth without undermining the economy in general. This sometimes takes the form of extending tax breaks to citizens who fall into certain income brackets, making it possible for those households to enjoy a slightly higher standard of living. At other times, the current status of income distribution will also impact what type of government services are provided and which groups of citizens can qualify to receive those services, including health care and food assistance.

Within a company, income distribution typically has to do with how the collected revenue of a business is allocated or distributed in order to keep the operation solvent. Ideally, the company is able to make use of its revenue stream to cover all operational costs including the payment of taxes, and still put a portion of that income away into interest-bearing ventures that create a financial cushion the business can draw upon during slow periods. By seeking to achieve a more equitable balance of income distribution, the business increases its chances of remaining a viable entity for many more years.

Even a household engages in the task of managing income distribution. This often involves periodic reviews of the household budget and accounting records to determine how much is being spent on each budget line item. For example, a household may review its records and find that an undesirable amount of income is being spent on meals out, and choose to correct the situation by preparing more meals at home. Periodic review opens the door to finding more ways to make household income provide greater benefits in terms of meeting needs and making it possible to save money that can be disbursed for emergencies or after the primary earners in the household have entered into retirement.