Abstract
In this chapter we are applying our model to Japanese data spanning the period 1959–1969. During this decade economic growth in Japan was steady and uninterrupted, providing an opportunity to clearly observe the effects of growth related changes In final demand on distribution.
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Still, the low income levels of many households of old people, of fatherless families, and of households without employed workers form a potential target for Japanese redistributive efforts (Economic Planning Agency, Economic Survey of Japan 1971–72, pp. 133–134).
The data permit us to make this comparison only for urban workers’ households.
The study on the relationship between distribution and growth by Paukert, Skolka and Maton (1975) uses, however, average propensities to consume.
We also estimated functional forms that do not meet the additivity constraint such as the double-log (constant elasticity) Engel function. Equally we experimented with not imposing the requirement that the same form be selected for all expenditure categories. Both cases, however, resulted in a larger violation of the additivity constraint than might be acceptable as compensation for improved statistical goodness of fit resulting from not imposing the constraint.
NFIE distinguishes 16 income groups in 1959 and 9 groups in 1969. To make over-time comparisons possible, the results are presented using income quintiles.
Weisskoff (1976) made a similar assumption in his study on Puerto Rico. His matrix equivalent to V in our model is said to “summarize the earning and owning practices for each industry.” (p.226)
Time and resource limitations made it necessary to restrict the comparison to two years.
Strictly speaking, any over-time comparison of income distribution data should be done using distributions adjusted for changes in age composition and in size of households (Sawyer, 1976, p. 18–20). No such adjustments were attempted here. The effects of these changes on the Japanese income distribution have been investigated elsewhere (see the survey in section III.1).
The same is true, of course, if the yen was not earned by a quintile, but given to it, as a transfer. For the remainder of the discussion, whenever we mention “earned by,” the alternative possibility “given to” is implicitly included, and vice versa.
Computational formulas (for quintile distributions) used are: Gini-coefficient = \(1 - \sum\limits_i {(.2)\quad (CY{S_i} + CY{S_{i - 1}})} \) Kuznets-measure \({{\sum\limits_i {\left| {Y{S_i} - .2} \right|} } \over {1.6}}\) where YSi = percentage share of income of quintile i. CYSi = cumulative percentage share of income. See: Oshima, 1970, p. 8–9; Wada, 1975, p. 229.
This is only true for a given distribution of wealth. This model does not consider the effects of different saving rates on wealth accumulation. The fact that higher income groups have a higher average propensity to save allows them to accumulate wealth faster and could thus change the distribution of income in their favor. This would be reflected by a change in V in the linkages matrix (I–VBc’)-1.
This is so looking only at the multipliers, and disregarding the absolute amounts of final demand that go to these sectors.
We should emphasize that the inequality of income we talk about refers to incomes generated by final demand in the sectors in question. This is not to be confused with the inequality of incomes paid to people who work in a given sector. For example, the distribution of income of construction workers is not the same as the distribution of incomes generated by final demand for construction. The latter includes incomes in other sectors that deliver to construction.
The entries in that table are obtained by dividing the entries of Table III.8 (a), total income generated by each final demand component, by the corresponding column totals of Table III,7 (amounts of total final demand).
This conclusion does not run counter to what one might expect a priori. Indeed, investment involves a lot of construction which is a sector with great technical flexibility. It offers much opportunity for labor-intensive methods of production, and as such it can be favorable for the lower income groups. Ranis (1971) and Turnham and Hawkins (1973) both discuss the importance of the construction sector in providing employment and in channeling income to low income groups in LDC’s. Although Japan could hardly be classified as LDC in 1959, its experience seems quite relevant for today’s LDC’s in clearly bringing out the importance of the construction sector as a provider of income for the poor.
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© 1983 Springer-Verlag Berlin Heidelberg
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Grootaert, C. (1983). An Application to Japan. In: The Relation Between Final Demand and Income Distribution. Lecture Notes in Economics and Mathematical Systems, vol 217. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-51563-7_3
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DOI: https://doi.org/10.1007/978-3-642-51563-7_3
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