

DEBRE TABOR UNIVERSITY

FACULTY OF BUSINESS AND ECONOMICS

DEPRETMENT OF ECONOMICS

A SENIOR ESSAY RESEARCH SUBMITTED TO DEPARTMENT OF ECONOMICS OF

DEBRE TABOR UNIVERSITY IN APARTIAL FULFILMENT OF THE REQUIREMENT OF
BA DEGREE IN ECONOMICS

SOURCE OF INCOME INEQUALITY: IN THE CASE OF DEBRE TABOR TOWN

BY:
1. ASHEBIR JEMANEH 223/08
2. DIBE DABELO 606/07
3. DINKE TAERA 263/08
4. EPHISON OROME 271/08

Advisor: Alemnew.G (Msc)

May 2018

DEBRE TABOR, ETHIOPIA

i
 

ACKNOWLEDGEMENTS
First and for most, we would like to thank our almighty God for his mercy, love and grace which
enables we to succeed and though out our life.

Secondly, we would like to express our deepest gratitude and appreciation to our advisor,
Mr.ALEMNEW GETENET (MSc) who really sacrificed his precious time in reading and
reviewing so many drafts and final output of our work. This paper, indeed, could not have been
written without his unstinting and gracious support, commitment and advice.

Thirdly, we would like to express our deepest appreciation to our family and for over all
assistances.

ii
 

Contents
ACKNOWLEDGEMENTS.................................................................................................................................i
LIST OF TABLE.............................................................................................................................................iv
LIST OF FIGURE............................................................................................................................................v
ACRONYMY.................................................................................................................................................vi
ABSTRACT..................................................................................................................................................vii
CHAPTER ONE..............................................................................................................................................1
1. INTRODUCTION.......................................................................................................................................1
1.1 BACK GROUND OF THE STUDY...........................................................................................................1
1.2 STATEMENT OF THE PROBLEM..........................................................................................................3
1.3 RESEARCH QUESTION........................................................................................................................4
1.4 OBIJECTIVE OF THE STUDY.................................................................................................................4
1.4.1. GENERAL OBJECTIVES................................................................................................................4
1.4.2. SPECIFIC OBJECTIVE...................................................................................................................4
1.4 SIGNIFICANCE OF THE STUDY............................................................................................................4
1.5 SCOPE OF THE STUDY........................................................................................................................5
1.6 Limitation of the study.......................................................................................................................5
1.7 ORGANIZATION OF THE STUDY..........................................................................................................5
CHAPTER TWO.............................................................................................................................................6
2. LITERATURE REVIEW................................................................................................................................6
2.1 THEORETICAL LITERATURE.................................................................................................................6
2.1.1 DEFINING INCOME INEQUALITY.................................................................................................6
2.1.2 The world distribution of income...............................................................................................7
2.1.3 Inequality and growth.................................................................................................................8
2.1.4 HOW BAD IS INEQUALITY?..........................................................................................................8
2.1.5 SOURCE OF INCOME INEQUALITY...............................................................................................9
2.1.6 Measuring income inequality...................................................................................................10
2.1.7 Lorenz curve.............................................................................................................................11
2.1.8 Empirical literature...................................................................................................................12
CHAPTER THREE........................................................................................................................................16
3. RESEARCH METHODOLOGY...................................................................................................................16

iii
 

3.1 DESCRIPTION OF THE STUDY AREA..................................................................................................16

3.1.1 TYPES AND SOURCES OF THE DATA..........................................................................................16
3.1.2 SAMPLING TECHNIQUES AND SAMPLE SIZE..............................................................................16
3.1.3 Method of Data Collection........................................................................................................17
3.1.4 Methods of data analysis..........................................................................................................17
CHAPTER FOUR..........................................................................................................................................18
4. DATA ANALYSIS AND INTERPRETATION.................................................................................................18
4.1. Measuring Inequality....................................................................................................................18
4.2. The size distribution....................................................................................................................18
4.3. Functional /factor share/ distribution of income............................................................................18
4.4. General characteristics of the household or respondents..............................................................18
4.5 Technique to measure the inequality..............................................................................................20
4.5.1 Lorenz Curve Analysis...............................................................................................................20
4.5.2 The Kuznets Ratio.....................................................................................................................23
CHAPTER FIVE............................................................................................................................................24
5. CONCLUSSION AND RECOMMENDATION..............................................................................................24
5.1 CONCLUSSION.................................................................................................................................24
5.2 RECOMMENDATION........................................................................................................................25
Reference..................................................................................................................................................27
APPENDIX..................................................................................................................................................28

iv
 

LIST OF TABLE
Table 4.4.1……………………………………………….……………………………………………..22

Table 4.4.2…………………………………………………………………..…………………………23

Table 4.4.3…………………………………………………………….……………………………….23

Table 4.4.4………………………………………………………………..……………………………24

Table 4.4.5…………………………………………………………………………….………………………..24

Table 4.5.1.1……………………………………………………………………………………………25

v
 

LIST OF FIGURE
Figure 2.1.7………………………………………………………………………………………………….15

Figure 4.5.1.1.1…………………………………………………………………………………………….25

Figure 4.5.2.1………………………………………………………………………………………………..26

vi
 

ACRONYMY

DTA: Debre Tabor Administration

LDCs: Less Developed Countries

NI: National Income

NGOs: Nongovernmental Organizations

DCs: Developed Countries

vii
 

ABSTRACT
In the world countries, especially in developing countries there is income inequality problem.
So, this income inequality raises economic, social and cultural problems between individuals.
Due to the above reason, the writers want to study the source of income inequality in Debre
Tabor town and to understand the ways to reduce inequality of income between individuals.
The data was collected by using both primary and secondary sources and we used simple
random sampling method by selecting 99 sample. The result in figure 4.5.1 Lorenz curve
indicates that, it is highly bending or closer to the bottom horizontal axis that shows high
inequality of income between individuals in Debre Tabor town. Lastly, the researchers were tried
to recommend and conclude it by putting some solutions inorder to minimize income inequality
problem between individuals.

viii
 

CHAPTER ONE

1. INTRODUCTION

1.1 BACK GROUND OF THE STUDY

Income inequality is measurement of the distribution of wealth across house holds its relative
comparison of the gap and house hold income across a given regions country or the world.
Formally measuring income inequality is often used as a bench mark for the welfare of society or
country –relative poverty or posterity of society and used as justification policy attempts income
retribution. And so inequality in the distribution of income undermines social stability and
solidarity. It also reduce social welfare function negatively. Otherwise income inequality is the
state of an economy in which the shares of total income by the rich and poor are highly unequal.
From biblical perspective as described above is a fact of economic life. Different people born
with different gifts and choose pursue them differently those gifts carry unequally earthly
rewards, one of which is in the form of income (WWW.income inequality.com)
Income inequality among house hold is usually measured by the distribution across income-size
class is commonly called the size distribution of income. The lower income class shares of
higher-income class and the higher the share the low income class the more equal income
distribution is considered to be. Thus size distribution (P.todaro 2009)

This trend will likely continue. As reason suggests, if everyone invested an equal percentage of
their wealth and earned the same rate of return, the wealthiest individuals would outstrip the
earnings of others by virtue of proportion alone. Other factors also bear influence. At least one
scientist has hypothesized that as the proportion of women permanently entering the work force
increases, income inequality will rapidly increase (Rivlin, 1975). If increasing income inequality
leads to more crime, the United States cannot afford to ignore equity during the current rapid
economic expansion. To address the problem, policy makers need to know the precise effect of
inequality on crime. Government may need to reallocate its resources to efficiently quell
participation in illegitimate activity. Welfare and taxation policies in particular may have

1
 

unexpected consequences depending on the strength of the correlation between income

inequality and crime rate. Even increased educational spending could have an adverse affect.
Consider this finding: “...ceteris paribus, higher per capita educational expenditures tend to be
associated with states that have income inequality which is greater than the U.S. average”
(Bishop, et al., 1992). This implies that if income inequality significantly affects crime rates,
increased educational spending may cause crime rate elevation.
What is income inequality? An income inequality measurement assesses the income distribution
of a given population. If all measured units of population earn the same income, zero inequality
exists. Conversely, a large earnings gap between high and low wage earners translates into high
income inequality. How does this relate to crime? Fundamental economic crime theory,
specifically the work of Ehrlich, suggests that low-income residents in disparate areas have
greater incentive to commit crimes. Succinctly, potential criminals are increasingly likely to
pursue illegitimate activities when surrounded by greater wealth. Thus, I will empirically test the
hypothesis that income inequality significantly correlates with crime rate: populations exhibiting
high income inequality will have higher crime rates than populations with less disparate income
distributions.
Many researchers have studied the relationship between income inequality and crime. Although
scientists generally agree that an increase in income inequality will result in more crime,
measurement inconsistencies have rendered research about the correlation inconclusive. For
example, in his investigation of crime, Ehrlich found a “strong positive correlation between
income inequality and crimes against property.” Ehrlich, however, used a nonstandard
measurement of inequality, “the percentage of families below one-half of the median income”.
Clearly, Ehrlich’s measurement does convey income inequality, but it represents an arbitrary
definition that hampers efforts to objectively compare his results with others.
According to Schutz, “Equality of income distribution is found when every income-receiving
unit receives its proportional share of the total income. Researchers agree that when this linear
distribution does not occur, income inequality exists. The main source of discrepancy lies within
how scientists measure income distributions and define the “income receiving unit.”
Various types of income inequality measurements have gained acceptance with scientists.
Economists most frequently use the Lorenz curve, and its derivative, the Gini index.

2
 

During ancient time that means there were income inequality land lord and ordinary peasants.
Between women and men however this problem becomes wider from time to time as a result.
This gap lays effect on the socio economic development of the country. In general given the
current market oriented economic policy of Ethiopia understand ding the source of income
inequality on socio economic development compromise the prime are of research. This
inequality distribution income affects not only the economic development of country or
individual level but also the social and the cultural interaction of the society. This problem is
raised during earlier time and it continues up to this day. And this problem that is
inequality of income has strong relationship with poverty. (Michael p.todaro.2009).

1.2 STATEMENT OF THE PROBLEM

Income distribution is not fair in every nation of the world (todaro 2003).but the extent of
unfairness or inequality is different from one country to the other country. This income
inequality of less developed country is more unjust than that of developed countries. (Michael
p.todaro 2003).
In general personal income will be distributed less equally in the poorer nations than in the
wealthier nation. That means income gap between people of rich nation is narrow. The
distribution of total personal income among all nations will be externally unequal. Inflation also
affects the distribution of income from pensions welfare payment or other source. When wage
raise fixed income make up smaller proportion of the national income when price raise these
people cannot by as much as before (p.todaro2009).
Even if less developed countries have number of problems on their economic development like
lack of capitals, skilled man power etc. the countries may be aggravated by income inequality
among the people or individual. The problem that means income inequality is not a recent
phenomenon. In generally aggregate growth with probably be the most important factors
affecting individual level of income, hence understanding the determinant of aggregate economic
growth is the key understand how to understand of living individuals in the world and more by
the lesson world poverty.
After discussing the reason why we give attention for poverty and inequality. We have to
measure poverty and inequality that undeveloped to evaluate the welfare significance of
alternative returns for growth (p.todaro, 2009).

3
 

As different scholars indicate this inequality on income puts its effects not only the economic
phenomena of the country. But social conditions of the country in order to show the source of
income inequality in debre tabor town. It shall better to measure the level of inequality between
the individual of whole society.

1.3 RESEARCH QUESTION

Based on the statement of the study that was mentioned is generally frame of the research the
following questions might be seen as fundamental bases for this paper.

 What extent is the level of income inequality in Debre tabor town?

 What is the source of income inequality in the town?

1.4 OBIJECTIVE OF THE STUDY

1.4.1. GENERAL OBJECTIVES

The general objective is to identify the source of income inequality in Debre tabor town .

1.4.2. SPECIFIC OBJECTIVE

 To examine the level of income inequality in the Debre tabor town

 To identify the source of income inequality.

1.4 SIGNIFICANCE OF THE STUDY

The study would to give the essential solutions about the problems of income inequality in Debre
tabor town. The study has the following significance. The study shows the gap between the poor
and the rich to authorized body of the government. to do more in order to know the gap between
them by clearing the working conditions opportunities for the less income society .The study has
emphasize on social and economic problems which is the absence for the welfare of the economy
.therefore, the study will show the gap between the society and it will create moral on the size of
the poor in order to narrow the gap . it help the society to identify the source effects and other
indicators of the income inequality and also show direction alleviate.

4
 

1.5 SCOPE OF THE STUDY

The study is conducted in Debre tabor town. Debre tabor town is one of the town in the southern
Gondar. The scope of this study is investigate the problem of income inequality in Debre tabor
town .

1.6 Limitation of the study

The main constraints that the researcher would be faced, on this study , it is time consuming to
distributed and collect questionnaire from individual peoples, financial problems and the
researcher charts face to fulfill necessary materials and there is also lack of research paper do on
related topic in that area. During the time of data collection the researcher would face in the case
of primary data collection many respondents may not willing to response by contracting on time
and involuntary emphasis on Debre tabor town because of the above reasons.

1.7 ORGANIZATION OF THE STUDY

The study consists of five chapters. The first chapter is about the introductory part of the
study .that means it includes about the back grounds, statements of the problem, objectives of the
problem, significance of the study and of finally scope and limitations of the study .The second
chapter present the literature review and the source of the income inequality .The third chapter
research methodology. The fourth chapter consists of quantity analysis if the study (data analysis
part ) but the last chapter consists of the area regarding recommendation and conclusion of the
study.

5
 

CHAPTER TWO

2. LITERATURE REVIEW
2.1 THEORETICAL LITERATURE
2.1.1 DEFINING INCOME INEQUALITY

By each factors of production tom the production process. The owners of the labor will get wage.
The capital owner also get interest for capital invest and soon different factors of production are
paid differently the owner of these factor service came to score different amount of income
function distribution income therefore leads to personal inequality of income since inequality of
income inequality is the existence of disproportionate distribution of total national income
among households. It is unequal distribution of house hold or individual income across the
various participants in an economy. Income inequality is often present as the percentage of
income to percentage of population. (www.income inequality .com).

Theory of Distribution of national wealth and income may best be analyze under the theory of
personal distribution and theory of functional distributions , personal distribution may be relate
with the division of national income between individuals what determines the manner in which
wealth and income are divided among the people ? these questions from the subject matter from
the theory of personal distribution. Functional distribution refers to apportionment of national
income among owners of land, labor, capital and organization which are employed in the
production process.

Functional distribution implies that every factors production will get a share in the total income
produce according to the functional service per form of according to the contribution make
income is considered the accounts defects of capitalism and since it will have direct responsible
for the emergency of socialism and commercialism in place of capitalist society. We shall

6
 

analyze the cause will have responsible for emergency and continues of inequality of income in
free society and formulate a solution of problems (n.jsomashakak, 2003).

Income inequality the gap creates between the rich and the poor in generating the income. The
growth increase provoker‫ؙ‬s disruption and frustration among the poor. Which may ultimate in
disruption and income generate greater than of the income generate by the poor? Developing
economies are likely to experience the increasing in equality income. From the points of view
economic civil war destroying social and political bias of economic activities in equalization is
not desire by the criteria of social just (m.ptodaro, 2003).

2.1.2 The world distribution of income

By any standard one cares to take the evidence is unequivocal that the worlds income distributed
externally unequal to nation and people and that there exists in the world abroad. North south
divided in to rich and poor countries. The world bank classifies the countries of the world in to
four based category.
1. Lower income country
2. Middle income country
3. Industrial market economies
4. High income oil exports

This classification is large the low income and middle income countries that we shall refers to as the
developing countries there several dimension of the development gap. But focusing for the movement on
income per ups and ignoring measurement difficulties countries are classified as low of income in a state
of primary poverty with weighted average level per head of only 270 per annual. At the other hand of the
spectrum there are industrialized country enjoying an average annual per capital income of closed to
dollar 12000. These live some idea of the ranges of income difference, Turing new to the consideration of
the world income in relation to population and using their fold classification low income. Middle income
and industrial countries, we find that the low income countries contain approximately 90 % of the world
population and receive 6% OF world income. Middle income countries contain 15 % of the world

7
 

population and receive 17% of the world population. Yet receive 77%of the world income (a.p.thrilwal
growth and development economics)

2.1.3 Inequality and growth

It may be through that by promoting his/her saving rates by the rich inequality of income are
conductive to growth. There is no conclusive evidence. However that saving is positively related
to income inequality leads her growth. In LDCs income inequality is associated with lower
growth (m.ptodaro economic development. 2003 p253-255).

2.1.4 HOW BAD IS INEQUALITY?

Inequality among the poor is a critical factor in understanding the depth of poverty and impact
of poverty changes among the poor. We shall concern major reasons. The first extreme income
inequality leads to economic inefficiency. this is because at any given income the higher the
inequality. The smaller the function of fraction of the population that qualifies for a loan or other
source of credit with highly inequality. The over all rate of saving in the economy tend to be
lower. because the highest the rate of marginal saving is usually found among the middle class.
further inequality may lead to an efficient allocation of assists high inequality leads to over
emphasis on high education and this in turn be gets still more inequality income. The second
reason to be concern with inequality among those above poverty line is that extreme income
disparities undermines social stability and solidarity. Worse high inequality strengths the
political power of the rich. as well as there economic bargaining power countries with extreme
inequality such as Iran have under gone up heavies or extend civil strife that have cost countless.
Lives and set back development progress by decodes. In some with high inequality the focus of
politics often tend to be on the redistribution of existing economic ‘’pie’’ rather than on politics
to increase its size (Michael p.todaro economic development). Finally extreme inequality is
generally viewed as un fair. The eminet philosopher john rows (m.ptodaro. economic
development 2009)
Proposed a through experiment to help clarify why this is you may be born at the most
wretchedly poor person in rural Ethiopia or you may be born as bill gets. With equal probability
rows cause this uncertainty the evil of ignorance (Michael.p.todaro 2009).

8
 

2.1.5 SOURCE OF INCOME INEQUALITY

A. difference in education level

All know in Ethiopian education is one of the major source income. There for those individual
with higher education and qualification earn more than those with no qualification in the town.
Therefore, this education difference creates the income inequality of income between the qualify
and non qualify individuals in Debre tabor town (education office , 2018)
B. economic insecurity of the worker
A very important consequence of the inequality of wealth and income and its implication of
economic insecurity of the many are the predominant section of the community. Take the cause
of business fluctuation which is so common in our present day industrial life. During and
industrial depression successfully may be complete to close down his shop or factory
temporarily, but his manner of living or the standard of living of his family will not be altered at
all. On the other hand, these workers who have lost their jobs during depression find themselves,
literally on the street. The unemployed mean go about looking for jobs which do not exist. They
and their family starve and die hopelessly. Besides this insecurity rising out of unemployment,
there are the problems of occupational disease, industry accidents and uncertainty of old age.
C. unequal educational opportunity
Education is expensive to the poor eve education is costly and large number of boys and girls
with good minds and abundant ambitions are force by economic necessity to get along without it.
In country like Ethiopia, the vast majority of the people cannot send their boys and girls to
schools and colleges, beyond the primary stage. High school and college education is possible to
a hand full of families who can afford that luxury for their sons only. The absence of equal
opportunity for education means that the number of family who has small income and little
education qualification are generally restrict in other chooses of occupations. the son of a clerk
do not get a better education, the rich man sons with better education, social back grand and
other facilities. This inequality of wealthy and income is responsible for inequality of
opportunities in education and job, which in turn leads to the preparation of inequality of income
and wealth.
D. the system of inheritance
The accumulation of rich persons passes to their heirs by system of inheritance. The heirs are
able to enjoy an income without doing any work. Therefore, this inheritance from parents and

9
 

relative aggravates the gap of income inequality between individual in the research area (john
slow man).

E. Less socially acceptability and confidence

In this study the research tried to elaborate the inequality between individuals, in the town
therefore, this inequality creates the feeling of inferiority and less confidence on the less income
group in the town. In general societies do not hear the voice of the poor in the town.

2.1.6 Measuring income inequality

If there is a great deal of disparity in the income of people in a society the signs of such
economic inequality are often quite visible. We probably know a society is very unequal when
we see it. If two people are support to share a cake and one person has all of it that is unequal. If
they split 50-50 that is equal. We can evaluate every intermediate divisions such as 30-70 and
40-60 with affair amount of precisions. All that goes as a way however once we have more than
two individuals and we try to rank intermediate divisions of the cake. It is obvious how to
compare 20-30-50 division among the three people with a 22-22-56 division? In such cause and
in even more complicate ones will. If may be usually to try and “measure” inequality this means
that we develop or examine inequality indices that permit the ranking of income or wealthy
distribution in two situation countries, regions. Point of time and so on (Debraj ray 1999).

10
 

2.1.7 Lorenz curve

It is common way to analyze personal income statics is to kwon as Lorenz curve,in this curve the
numbers of income recipients are plotted on the horizontal axis.Not on the absolute term but in
the cumulative percentage and the percentage of income in the Y-axis then the Lorenz curve
shows the actual quantitative relationship between the two. The more Lorenz curve away from
the diagonal the greater the degree at inequality represents. the extreme cause of perfect
inequality that is the situation on which one person receive all the national income while ever
body else receive no thing will be represented by the compared of the Lorenz curve with bottom
horizontal and right- hand vertical axis. Because the countries exhibits either perfect equality or
Perfect inequality in its distribution of income. Lorenz curve for different countries LDCS will
be somewhere to that right at diagonal (Michael.Todoro, 2009) .
Figure 2.1.7 Lorenz curve

line of coplete 45%

O inequality C

11
 

2.1.8 Empirical literature

The kuznet hypothesis there has been much controversial among economist over the issues
weather economic growth increases or decrease income distribution professor Kuznets is the
firest economist to study this problem empirically. He observes that in the early stage of
economic growth relative inequality increase stabilize for time and then decline in the latter
stages. This is known as the inverted U-shaped hypothesis of income distribution ( mechael
p.tudaro.2009). it was in his 1965 study that Kuznets develop his inverted U-shaped hypothesis
by the take the data of 18 countries by size distribution of income. On their basis he construct
different Lorenz curve for developed countries and less developed countries and derived their
Gin-coefficient. It was 0.37 for developed countries and 0.44 less developed countries. It shall
that income inequality is in LDCs then in DCs. This is explained bellow in the figure where the
44 degree straight line OD is equal distribution. The thick curve to right and nearer to this line is
Lorenz curve developed countries. Dotted curve for the right represents the Lorenz curve of
LDCs. But the gin coefficient of distribution is better measure of degree of income inequality. It
varies from zero (0) or complete equality to one (1) (completed inequality) the larger the
coefficient the greater inequality. The gin coefficient is measure in figure as the ratio of area
A/A+B or A/AOCD. The greater is this ratio. The more unequal is the distribution of income.
That means the more Lorenz curve falls below the 45% line in figure bellow the area “A” by the
think the Lorenz curve roughly represents 37% the triangle ODC for DCs and the area covered
by dotted Lorenz curve represents roughly 44% of the area of triangle CD for LDCs.

The change in the gin coefficient in relation to the increase in per capital income trace out the
Kuznets u-shaped curves as show figure income inequality falls with an increase in per capital
income at the higher level of development the variance around the estimated Kuznets five curve
is greater. However from the low to middle level of development the inverted u-shaped curve
hypothesis applies to the present develop and developing countries by the degree of inequality in
the latter is greater than former.(M.L Jhingan the economics of deployment and planning)
Salai-i-martin(2002a,b) investigates in two similar papers the world distribution of income
between 1970 and 1998 using aggregate GDP data and within country income shares. The world
Wide distribution of income is estimate using kernel densities,which in turn are used to generate
poverty rates and inequality indices. The data covers 125 countries around 90 percent of the

12
 

world population. PPP adjusted GDP data are use in place of average income, while survey data
are use to estimate the income shares. The within country income group shares steam from
deininger squire (1996) and the world development indicators of the world bank.
Sala-i-martin (2002a,b) classifies countries in to three groups according to data availability. The
first group, which consists of 68 countries and 88% of the population that is included , has sala-i-
martin acknowledges the critic of the Deininger and squire data by Atikinson and Brandolini
( 2001) but claims that since most of the movements in global inequality stem from cross-
country disparities rather than with in country ones, the main conclusion and trends will not
change estimates of income shares available for several years (we were unable to glean the
papers the number of data points per country or other country- level details ). For this group,the
income shares are regressed over time to get a linear trend for each country. For the second
group of 29 countries, income shares for only one year are available and for this group the
income shares are assumed to be constant over time. For the remaining 28 countries, no share
data are available so all citizens in these countries are treated as having the per capital income of
the country. The difference between the two papers sala-i-martin is how the income shares then
are treated.
In Sala-I- martin (2002a), each quintle group is assigned a different level of income and within
each quintile each individual is assumed to have the same level of income. Sala- I- Martin
(2002b) goes a step further,and instead of assuming that incomes within quintiles are constant,
each individual is assigned a different income using density functions. All estimated inequality
indices suggest global income inequality declined between 1980 and 1998. Most of the global
disparities can be accounted for by between- country inequality. The estimated reductions in
inequality are mainly driven by income increase s in china, the world’s most populous country.
The process is reinforced by the positive growth performance of India. Even if inequality has
increased in china and India, the inequality increase has not be nearly large enough to offset the
substantial decline in across country disparities. The difference in the result between the two
different papers is not substantial; the level of inequality is only a little higher in the second. In
the latter paper, within-country inequality‘s contribution to global inequality is around 35%about
(for the mean log deviation and Theilindices), where as in the first it is about 30%. The exact
proportion varies across time- in 1970 only 20% of the world inequality is accounted for by
within – country inequality.

13
 

Milanovic (2002a) is highly critical of sala-i-martin (2002a,b), claiming that result not in the
distribution of income among world citizens, but in a population weighted international income
distribution of income, augmented by a constant shift parameter. According to this view, the
calculations essentially boil down to assuming within- country inequality to be fixed throughout
the entire period.
According to milanovic, the average number of observations in the first two groups for which
sala-i- martin has observations is 5.5 out of 27 years. Only 6 countries have observations for at
least 2/3 of the time. The fact that Russia and all other countries of the former soviet union are
exclude despite the availability of data, is also a drawback, since these countries lately have
experienced high increases in within-country inequality. In milanovic’s own calculations, the
transition countries account for about a half of the 2.8 Gini increase of the world inequality that
he finds between 1988 and 1993. If one will increase sala-i- martins gini with 1.5 gini points
from 1990, it will not show a down ward trends but remain stable.
Milanovic (2002b) estimates the world income or expenditure inequality for individuals for the
years 1988 and 1993 and in latter studies also for 1998. The world distribution is essentially
derived in the same way as one will derive a county’s income distribution from regional
distributons. House hold surveys from 91 different countries adjusted for difference in PPP are
used.
The various estimate with regard to the distribution of the national income that the inequalities of
income and wealth have widened rather than narrowed as a consequence of planned economic
development in India. The mohalanobis committee on distribution of income and level living
(1964) revealed the following patterns of income distribution in country based on the estimates
to the reverse hand of India of lynengar and mukherjee and of the national council of apply and
economic research. The reversed bank of India ( RBI) estimates show that during the period
1953-1954 to 1956- 57 the top 5% of the total households shared a 20% of national income and
the bottom 20% only 8% of income households. In addition the rural and urban break down
shows that the degree of inequality in urban than in the rural sector. The estimate of lyningar and
mukherjee also reveal wide disparities between the bottom 20% the top 10% and 5% of the total
households. Respective shares in national income being 8.5%. 25% and 17.5% for 1956-57 the
mohalanobis estimate for 1960 shows the gap between the top and widened much. In the urban
sector the bottom 20% received 42.4% and 31% of national income respectively. In the rural

14
 

sector the share of the bottom 20% is the same as for the urban (4%) will the top ten (10) % has
33.6% of the nation income. This again reveals that the degree of inequality is same what less in
the rural than in the urban sector.
The mohalanobis committee further revealed on the base of data prepared mohalanobis about the
share of household in aggregate income before tax for 1960 that the share of the bottom 10% of
household in aggregate income is only 1.3% in the urban sector and 0.7% the rural sector while
that of top percent of household is 42.4% in the urban and 33.6% in the rural sector. Further the
lower 5% of households has 17.5% share in aggregate income in the urban sector. While the top
5% of the house hold 82.5% of the aggregate income. The comparative figures for the rural
sector for the two groups are 20.7% and 79.3% respectively. Than this mohalanobis committee
conclude on the base of this finding. the wide range of variation that one finds between the top
and the bottom tenths of population clearly reveals the existence of construction of economic
power in the country in its generalized from and the conclusion seems justify that even after ten
years of planning and despite fairly heavily schemes of taxation on the upper incomes. There is a
considered measure of concentration in urban areas. This will also hold goods for the rural
income as in their caused. Even border of taxation is not heavy on the higher ranges of incomes.
Another estimate of the growth of inequality in India has been made by danger and rash for the
period 1960-6 to 1967-68 on the bases of per capital consumer expenditure their study revealed
that the per capital national consumer expenditure increased by in 3.9%over the period 1960-61
to 1067-68 the per capital urban consumer expenditure increased 2.4% and per capital rural
consumer expenditure by 3.9%. to take the different sections of the rural population first over the
period of the study the per capital consumption of the 20% of the poorest increased less than 2%
and that the poorest 5% actually declined by about one percent. The consumption of the lower
middle section (20-40%) increased by 2.2 to 2.6%. that of one middle section(40 to 60% of
population ) increased by 3.7 to 4.1% upper, middle and the richer section( 40% of population
increased by 4.4%. thus the process of development during the periods 1960-61 to 1967-68
affected different sections of the rural population differently. If benefits the upper middle and the
rich sections much more than the rich sections much more than the middle. The middle and
poorer sections ( M.L JHINGAN).

15
 

CHAPTER THREE

3. RESEARCH METHODOLOGY
3.1 DESCRIPTION OF THE STUDY AREA

Debre Tabor town is located in northern Ethiopia in Amhara regional state and it is found in the
south Gander zone in the northern Amhara national region. Debre Tabor town is the border on
northern by woybela Keble, includes kebeles05,and kebeles 02, on the southern by Debre Tabor
eyesus includes kebeles03 on western by Abargay which includes kebeles06 and kebele01 and
kebele04, and tsegur adiko kebeles from east.the town located at the distance of 666 kilo meter
from Addis Ababa. Debre tabor was founded in 1327 during atseyiyfa arid. According to
2009E.C population housing census the town administration has total population 87627. Among
this female are 45670 and male are 41957. Town has six kebeles, (debre tabor administration
office).

3.1.1 TYPES AND SOURCES OF THE DATA

This study collected from both primary and secondary data as sources of information. Secondary
data would collect from written document and materials in the library related with study. Primary
data would collect from the residents of the town concerning the social, economic condition in
relation with income inequality through questionnaire and interview.

3.1.2 SAMPLING TECHNIQUES AND SAMPLE SIZE.

The total number of population lives in Debre Tabor town is 87627 with 12713 house hold who
are living in six kebeles. The entire population cannot be considering due to presence of large
number of population, time and resource limitations. The sample size can be collected by

16
 

minimum sample formula from six kebeles two kebeles are selected randomly from government
employer, non government employers and self employer. These are kebeles01 with 4473
households and kebele02 with 4281 households. The study took 99 sample sizes by simple
random sampling method.
Mathematical by yamane formula
N
n= +N (e ¿ ¿2
1
N=target population
e=error term
8754
n= +8754 (0.1)2
1

n=98.87 n=99

 from kebele 01, 4473(100)∕8754=51

 from kebele 02, 4281(100)∕8754=48

3.1.3 Method of Data Collection

The method of data collection of the study would be interview and questioners. The study would
be use sample survey to collected the required information. Sampling is chosen because it can
save time and cost and also provide efficient accurate wider information. Questionnaire would
develop in both open and closed ended questions to get consistence information answer from
respondents.

3.1.4 Methods of data analysis

The collected data are analyzed by using descriptive method that contains table, percentage and
Lorenz curve with brief interpretation and analysis.

17
 

CHAPTER FOUR

4. DATA ANALYSIS AND INTERPRETATION

This chapter is concerned with the data analysis and interpretation on the bases of data gathered
through questionnaire.

4.1. Measuring Inequality

Economists usually like to distinguish between two principal measures of income distribution for
both analytical and quantitative purpose. The personal or size distribution of income and the
functional distributive or factor share distribution of income.

4.2. The size distribution

The personal size distribution of income is the measure most commonly used by economists. It
simply deals with individual or household and the total income they received. The way in which
that income was received is not considered. what matter is how much each earns irrespective of
whether the income was derived solely from employment or came also from other sources such
as interest, profits, rents, gifts or inheritance?

4.3. Functional /factor share/ distribution of income

The functional or factor share distribution of income attempts to explain the share of total
national income that each of the factors of production (land, labor, capital, entrepreneur) received
in the form of rent, wage, interest and profit.

4.4. General characteristics of the household or respondents

Table 4.1 sex and income share of the respondents

Variable Description Number percentage Share of income

Male 55 55.6 192760 72.76

Gender
Female 44 44.4 98495 37.24

Total 99 100% 291255 100%

Source: own survey, April, 2018

Note: based on the sample from table 4.1, 55.6% of the respondents the male and they share of
income 192760(72.76) of the total income on the sampling and the rest covered by the female
44.4%and they share income 98495(37.24) of the total income. This all shows that majority of
the revenue in the town is on the hand of male.

18
 

Table 4.4.2 Education level and income share of the respondent

variable Description Number Percentage Share of income

Illiterate 0 0 0 0

1-8 24 24.2 17950 6.7%

9-10 15 15.2 21660 8.2%

Education
Diploma 32 32.3 91250 34.5%

Degree 28 28.3 134055 50.5%

Total 99 100% 264915 100%

S0urce; own survey, April, 2018

Education is the most important development of country as we see table 4.2 based on our sample
the education level 1-8 is 24(24.2%)and share 17950(6.7%)of total income 9-10 is 15(15.2%)and
share 21660(8.2%)of the total income, diploma is 32(32.3%)and shares 91250(34.5%)of the total
income and the rest covered by degree is 28(28.3%)shares 134055(50.6%)on the total data show
that above grade to covered high number and high have of income and also majority of the
residents in the town are learned.

Table4.4.3. Age range and income share of household

Variable Description Number Percentage Share of income

(%)
20-40 44 44% 80305 30.3%

Age 41-60 40 40% 96305 36.4%

Above 60 15 15% 88305 33.3%

Total 99 99% 264915 100%

Source; own survey, April, 2018

Note, As we seen table 4.3 respondents age range 20-40are 44(44%) more working age, and
share 80305(30.3)0f total income (246915), 41-60are 40(36.4%)share40(40)of total income,
respondents above 60 ages 15(15)share 88305(33.3%)of the total income, it is clear that majority
of the people in the town working age that means 20-40years.

19
 

Table4.4.4 work status and income share of the respondents

Variable Description Number Percentage Share of income

Self 49 49.5 114305 43.2%
Income share Government 40 40.4 70310 26.5%
NGO 10 10.1 80300 30.3%
Total 99 100% 264915 100%
Source; own survey, April, 2018

Note; from the data above 4.4 respondents of work status, self 49(49.5%) share 114305(43.2%)
of 10(10.1%) share 80300(30.3%) of the total income. Majority of the respondents/people in the
Town are self employed rather than government and NGO and share higher income compare to
government and NGO (private) employers.

Table; 4.4.5 cumulative percentage %of income of class

Class Number Income interval % share of income

th
20 300-950=650 4.5%
19th 980-1850=870 10.9%
20th 1900-2800=900 16.2%
20th 2850-4820=1970 30%
20th 5380 38.1%
Total 99 100%
Source: own survey, April, 2018

Note: the first class shares lowest income (4.5%) from the total income (100%)or 264915 and the
fourth class is share the highest income(38.1%)from the total (100%)or 264915 this class is
known as the top income groups. The first class income interval is very low compared to the
second, third and fourth class. This shows that lower income class is nearly similarities, (no gap)
with each other and higher income classes have dissimilarities (high gap) between no gap.

4.5 Technique to measure the inequality

4.5.1 Lorenz Curve Analysis
It is common way to analyze personal income statistics contract the Lorenz curve. Here the
number of income recipient are plotted on the horizontal axis, not in the absolute term but, in the
cumulative percentage term then from our data the cumulative percentage from of income share
and the cumulative percentage of recipient can be tabulated as follows.

20
 

Table: 4.5.1.1, share of recipient to share of income combination.

Percentage of recipients (%) Cumulative % of income

25 4.5
50 15.4
75 31.6
100 100%
Source: survey, April, 2018

The graphical form of the above table or the Lorenz curve can be presented as follows: that is
25% of the population receives 4.5% of income 50% receives15.4%, 75% of the population
receive 31.6 and 100% of the population receives the whole income(100) or 264915.

Figure ; 4.5.1.1.1 quantitative relationship between the percentage of the income recipients and
the percentage of total income

100
Line of equality
75

50

31.5 Lorenz curve shows

25 Income inequality in

s 15.4 Debre Tabor Town

4.5

25 50 75 100

Percentage of income recipients

Note: interpretation of figure 4.5.1.1.1

The cumulative of 25% of the people receives 4.5% of cumulative income, the cumulative 50%
of the people receives 15.4% of the cumulative income, and the cumulative of 75% of the people
receives 31.6% of the cumulative income. Here from the Lorenz curve show the higher degree of
bending and closer to the bottom horizontal axis, this is show that high income inequality
between Debre Tabor Town.

21
 

4.3.2 Gini coefficient

Gini coefficient and aggregate measures of inequality a final and very convenient short
summary measure of the relative degree of income inequality in Debre Tabor town can be
obtained calculating the ratio of the area between the diagonal and the Lorenz curve divided by
the total area of the half square in which the curve lies figure 4.2 this is the ratio of the shaded
area A to the total area of the triangle BCD. This ratio is known as the gini coefficient ratio or
more simply as the gini coefficient

Ginicofficient=shaded area A/total area BCD.

Gnicofficient are agregate inequality measures and can vary where from 0(perpect equality) to 1
(pperpect inequality) in actual fact, as use shall soon discover the ginicoefficient for Debre Tabor
Tawn with highily unequal income distribution typically lies between 0.50 and 0.75.

Ginicofficient=100/150=0.67

22
 

4.5.2 The Kuznets Ratio

It is the most common methods of measuring income inequality. In this study the researcher tries
to show the inequality between the individual and it is the ratio of the income received by the top
25% and bottom 50% of the population. It is measure of the degree of inequality between the two
extremes of very poor, very rich in the Debre Tabor Town as follows based on the table 4.6

That is :-

The inequality ratio=the percentage of share of top 20%

The percentage share of bottom 80%

38.1∕10.9=3.49 ~3.5

The result 3.5 means:-

As the result indicates, there is high degree of income inequality in the income of the people in
Debre Tabor Town. Here the kuzenet ratio become 3.5, it shows the existence of high degree on
inequality of income between individual

23
 

CHAPTER FIVE

5. CONCLUSSION AND RECOMMENDATION

5.1 CONCLUSSION
Income inequality is one of the socio economic problems of the world. This problem arises due
to different factors ; in turn it leads the people to high degree of variation between the poor and
the rich. Here in this study, researcher reached at conclusion that high degree of inequality
between individuals (households) in the town, the cause of income inequality like, the system of
inheritance, difference in economic function opportunities, unemployment monopoly capital are
the major cause for income inequality in Debre Tabor Town.

However, to make the study and the expression simple, the research arranged the source in
combined form that is economic insecurity of the workers, social insecurity of workers, unequal
educational opportunities, concentration of power in decision making on the common issue,
feeling of inferiority, in social affairs.

As indicated in the measurement of income inequality under the Kuznets ratio, it gives the value
of 3.5 that means, the value indicates the existence of high degree of inequality between
individuals, the Lorenz curve, it shows also high degree of inequality between individuals, this
all about shows that there is high income inequality between individuals. The clear conclusion is
that economic growth leads to substitution reduction in countries poverty and income inequality.

In general as indicated in the study, the existing high degree of inequality in Debre Tabor Town
put its source of the society general. That is widening gap of inequality the poor and the reach
affect the society of the town. Therefore, this research identified that Debre Tabor has high
degree of inco2me inequality between individuals. This is due to the cause that the researcher
listed and tries to explain before in term, the inequality in the Town has its own source on the
people on the Town. Unless the poor and the government emphasis and try to eliminate the
problems that is, income inequality, poverty and socio-economic instability.

24
 

5.2 RECOMMENDATION

Perfect equality for all the member of the society is hardly to be recommend, because the need of
the different individuals and their capacity for enjoyment are not the same the following are
some of the measure which can be suggested to reduce the problem, inequality of income. but the
measure should be taken by the concentration of the government as well as the society or other
NGOs

1. The principle job opportunity :-

Here government should set up sort machinery which provides equal opportunities to all the
poor in getting employment. Government used progressive tax system, and them try to allocated
to low income group in the form of subsidy and other form of gifts.

2. The principle fixed minimum must be given monthly wage:-

Government and other private owners should arrange the minimum wage for the employees,
should it narrow the gap between the poor and the rich. Government should give guarantee for
the low income party of the society to get assistances and aid in the form of income.

3. The principle of incentive:-

It means that extra reward must be given to those whose activities are socially usefull.

4 The high income group shall be expand their business:-

If the richer‘s expand their business, like manufacturing service and other forms of sector the
poor can gate income through way the employment. Therefore the gap will be narrow.

5. Government should accelerate its expenditure on:-

Free education, free transportation, low rent housing and other which leads people going to save
and then lowers gap between the poor and rich people.

25
 

6. Governments and NGOs should design different development

Projects:- like agricultural projects, manufacturing and so on.

7. Using government different policies.

A reducing the size distribution at the upper level through progressive income and wealth tax.
Direct progressive income tax focus on personal coop. rate income with rich required to pay a
high (large) than poor.

B. modifying the size distribution through progressive redistribution of assets ownership, it is

more important policy to reduce poverty and income inequality to focusing on reducing the
concentrated control of asset, the unequal distribution of power, unequal access to educational
and income earning opportunities.

C. Direct transfer payments and the public provision of goods and services to very poor is
another important instrument to reduce inequality. Example, health project, school lunch,
personal nutritional and supplementation problems and provision of clear water and
electrification and others the towns as well as the government’s policies to keep the principles of
essential goods and services and food stumps low.

Generally, these are some of the major (recommendation) that can be adopted to reduce
inequality of income. The study pointed out income inequalities can be reduced but it cannot be
eliminated all together.

26
 

Reference

 A.P trillwal /2004/, Growth and Development Economics 11th edition

 Debre tabor administration office,2018
 Debraj Ray/1999/, Development Economics 6th edition
 Michael .p.Todaro /2009/, Economics of Development 10th edition
 Michael.p. Todaro /2003/, Economic Development 8th edition
 M.L Jihangan /2004/, the economic development and planning 37th edition
 N.J Somashekar /2003/,Development and environmental economics 9th edition
 http;//;www.the freedictionary.com/income inequality
 http;//www.income inequality.com/reprieved on march 15, 2018 at 8:30am
 Milanavoic 201’’global income inequality by numbers in history and global policy 4(2):198-208.
 International monetary fund (IMF).2014a ‘’fiscal policy and income inequality ‘’IMF Policy
paper Ethiopia.

27
 

APPENDIX
DEBRE TABOR UNIVERSITY

FACULTY OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

QuestionnaireSS

These questionnaires are designed by a graduating student of economics.

The aim to gather data on the source of income inequality in Debre tabor town the
data is mean for writing of research paper to fulfill graduation requirements. You
are kindly requested to provide the necessary information carefully and precisely
for question listed below. Your answer is only used for research purpose. We want
to extent our thanks in adverse for your kind cooperation in instruction.

Remark

Do not write your name

For your answer please use blank space provide

Please mark in your choice (x)

PART ONE: Personal information

1. Sex: A. Male B. Female

2. Age: A. 20-40 B. 41-60 C. 60 and above

28
 

3. Marital status: A. Single B. married C. divorced D. Widow

4. Education status:

A. Illiterate B. primary completed d C. Secondary completed

D. Diploma E. Degree F. Other

PART TWO: Research related questions.

5. Is there Income inequality in Debre Tabor town?

A. Yes B.NO

6. Are you engaged in the income earning activities?

A. Yes B. NO

7. If your answer for question 6 no why you are not engaged in income earning
activity?

A. Based on my interest

B . I do not suitable job

C. I am retired

D. Describe if any ………………………

8. If you are employed in what type of job?

A. Governmental organization B. Private Organization C. Self employed

9. How much are your annual or monthly income?

______________________________________________________

29
 

10. Is your yearly or monthly income enough to your life?

A. Yes B. No

11. If your answer “no” for question no.10 why it is no?

A. My income is low

B. Number of my family high

C. Unbalance b/n my income and crises of life

D. Describe if any ______________________________________

12. What are the techniques or measures income inequality?

_________________________________________________________

13. What makes the income inequality of the people?

____________________________________________________________

30