Comparing income trends across countries | Macroeconomics | Khan Academy

TL;DR

Median per capita income after taxes has increased in the United States and other countries over the past 30 years, with varying rates of growth.

Transcript

• [Instructor] The goal of this video is to understand how median per capita income after taxes has trended in the United States in comparison to some other countries over a 30-year period. And the 30-year period for this chart is from 1980 to 2010. For example, in this first comparison, the United States is compared against Canada, and you can see... Read More

Key Insights

• 🇺🇸 Median per capita income after taxes in the United States has shown slower growth compared to Canada and Norway from 1980 to 2010.
• 🇦🇪 The rate of improvement in income varies across different percentiles of the income distribution, with the United States showing more significant improvements for higher income groups.
• ✋ Tax policy, such as lower highest marginal tax rates, may contribute to the higher rate of growth in income for higher-income individuals in the United States.
• 🇺🇸 The size of the economy may play a role in income differences between countries, but the comparison still highlights the United States' consistently higher incomes.
• 😘 Other countries, like Germany, show better relative improvement for lower income percentiles.
• 🇦🇪 Despite varying rates of improvement, being in the United States generally leads to higher incomes across all percentiles.
• 🇦🇪 The data suggests that even with steeper rates of growth in other countries, residents of the United States still have higher median per capita incomes after taxes.

Questions & Answers

Q: How does the median per capita income after taxes in the United States compare to Canada and Norway over the past 30 years?

At the beginning of the period, the United States had a higher median per capita income after taxes than Canada and Norway. However, over time, the rates of improvement were higher in Canada and Norway, leading to a closing of the income gap.

Q: Does the rate of improvement in income differ across countries for different percentiles of the income distribution?

Yes, the rate of improvement varies for different income percentiles. While the United States shows more dramatic improvements for higher percentiles, countries like Germany show better relative improvement for the lower percentiles. In general, being in the United States leads to higher incomes across all percentiles.

Q: What factors contribute to the higher rate of growth in income for higher-income individuals in the United States?

One possible factor is tax policy. The United States has a lower highest marginal tax rate compared to many other countries, resulting in lower tax percentages for higher-income individuals. The size of the economy and other dynamics may also contribute to income differences.

Q: Should the comparison of median per capita incomes after taxes be considered fair due to the United States having a larger economy than other countries?

While the size of the economy may influence income levels, the comparison still provides valuable insights. Even when considering the size of the economy, the United States consistently has higher median per capita incomes after taxes than most other countries.

Summary & Key Takeaways

• The United States has experienced a smaller increase in median per capita income after taxes compared to Canada and Norway over the period from 1980 to 2010.

• While other countries have had steeper curves of improvement, the United States has consistently had higher median per capita incomes after taxes throughout the entire period.

• The rate of improvement in income varies at different percentiles of the income distribution, with the United States showing more significant improvements for higher income brackets.