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PLEKHANOV RUSSIAN UNIVERCITY OF ECONOMICS

INTERNATIONAL BUSINESS SCHOOL

ESSAY IN MICROECONOMICS

«Income distribution and income policy in Russia»

Student: Melekhina E. A.

Group: 5104

Teacher: Gromyko V.V

Moscow 2015

Table of contents

• Introduction
• Income distribution in Russia
• Distribution of income of the enterprise
• Functional distribution of income
• Distribution of income by size
• Distribution of income by occupation
• Income policy in modern Russia
• Conclusion
• Sources of information


Introduction

The major category of market economy is profit. Profit maximization is the immediate goal of production in any sector of the national economy. Modern economic thought considers profit as income from the use of factors of production: labor, land and capital.

There are three main definitions of profit. Firstly, the service fee for an entrepreneurial activity; secondly, it is a payment for innovation, for talent in managing the firm; third, it is a payment for the risk, for the uncertainty of the results of entrepreneurial activities.

Profit is the first stimulus for the creation of new or development of businesses. Efficiency of commercial calculation, pricing etc. depends on rationality of its use. Possibility of receiving income causes to find more effective ways of combining resources to invent new types of products for which demand may appear, apply organizational and technical innovations that promise to increase production efficiency.

Working profitably, every company contributes to the economic development of society, contributes to the creation and increase of social wealth and welfare of the people, because profit is the main source of financing of working capital growth, renewal and expansion of production, social development of enterprises, also it is a major source of forming the revenue side budgets of different levels.

Income distribution in Russia

Distribution of income of the enterprise

The principles of the distribution of income of the enterprise may be formulated in this form:

- Profit received by an enterprise as a result of industrial, economic and financial activities is distributed between the government and the enterprise as a business entity;

- Profit for the state transfers to the appropriate budgets in the form of taxes and duties, the rates of which cannot be arbitrarily changed. Structure and tax rates, the order of their calculation and contributions to the budget are set up legally;

- The value of the profit received by an enterprise, remaining at his disposal after taxes, should not reduce its interest in the growth of output and improvement of the results of production and economic and financial performance;

- Profit remaining at the disposal of the company, primarily directed to the accumulation of its continued development.

On the enterprise there should be the distribution of the net income, so it is the profit remaining at the disposal of the company after taxes and other obligatory payments. There are the sanctions from this profit, payable to the budget and some off-budget funds.

All profit remaining at the disposal of the company is divided into two parts. The first increases the assets of the company and is involved in the process of accumulation. The second describes the share of the profits used for consumption. It is not necessary to use completely all the profits allocated for accumulation. The balance of profit has an important meaning and can be sent to cover potential losses, financing various expenses in the coming years.

Retained profit in the wide sense as the income used for accumulation, and retained profit from previous years, testifies about the financial sustainability of the enterprise, the presence of a source for further development.

Tables below draws upon official Russian sources summarizing income distribution and small enterprise formation. Here is used published regional data supplied by the official Russian statistical agency (Goskomstat Rossii, 1996, 2001, 2002).

Table 3 reports the share of income held by the bottom 20-percent and bottom 40-percent of the regional income distribution in 1995 and 2001 and illustrates several patterns. First, between 1995 and 2001 income distribution within Russian regions becomes slightly more inequitable: using either the national mean or regional mean. Between 1995 and 2001 households in the bottom 40-percent of the income distribution on average lost 1-percentage point of their share of overall income; and, households in the bottom 20-percent lost roughly a half percentage point. Russian income distribution dynamics during 1995-2001 are very different than the relatively flat changes in income distribution in Poland during 1993-98. Second, in Russia, the more dynamic changes in mean income shares between 1995 and 2001 disguise less variation across regions.

Table 4 reports data on the evolution of small enterprises for pairs of years in which the definitions are comparable and for which data are available. Remarkably, the number of small enterprises per capita and the share of the labor force employed in small enterprises decreases over time. There is an increase in employment shares in only one region in our sub-sample (Nizhniy Novgorod). Moscow and St. Petersburg appear to be outliers because the increase in labor force employed in small enterprises during 1995-2001 in these cities is roughly three and four standard deviations about the median region in our sub-sample, and roughly one and two standard deviations above Nizhny Novgorod.

Functional distribution of income

In Russia a great change in the functional income distribution took place in the 1990s. There was the fall of percentage share of wages from about 70% in the 1990 to 38% in 1997. As a result of the economic reforms of the 1990s the level of wages fell very much. A new social group of the poor appeared there - workers and employees with salaries and wages that were less than the subsistence minimum. Labour was not respected; there was great growth of crimes. The percentage share of labour rose up to 64% of total income in 1999 and up to 66% in 2002 because of positive rates of economic growth and the increase of salaries Lots of work should be done to remunerate labour according to its contribution to the national economy. Others incomes are presented in the total income structure of Russia in the following way: income on entrepreneurial activity accounted to 12% of total income, income on property - 4,8%, social transfers - 14,7% .

Distribution of income by size

Distribution of income by size shows how total income is distributed among households. All population is divided into several numerically equal groups according to the level of their income. The percentage share in total income is calculated for each group. In case of total income is distributed equally, then each 10% group will have receive 10% of total income, a 20% group - 20% of total income, a 25% group - 25% of total income. But in reality the distribution is not absolutely equal. Table shows the personal distribution of income in Russia in from 1991 to 2012. income distribution russia

Income distribution by size in Russia

There are some important conclusions.

Firstly, the degree of income inequality increased in the early 1990s.

Secondly, the income percentage of the third and fourth quintiles decreased, thus the so called middle class decreased in size.

Thirdly, today income is distributed very unequally. The poorest 20% of the population receive about 5% of total income, while the richest 20% of the population have about 50% of total income.

Distribution of income by occupation

In modern Russia the gap in wages and in earnings is very huge. In 2013 the official average wage in Russia was 27000 roubles a month. Monthly salary of a top manager was 10-30 thousand dollars. Wage differs due to the industry. The lowest wages are in agriculure, education, medicine, science and culture. The wages above the average are in the oil and gas industries, electroenergetics, finance, trade. Due to the general dollarization of the Russian economy which took place in the 1990s the labour market was actually split into two segments. The primary labour market was a dollar (or euro) market. Wages were denominated in a foreign currency (mainly the American dollar or the euro), they were paid in time, wages are much higher than average, good bonuses and social non-pecuniary packages were given to the employees. The secondary market is a rouble market. Wages are denominated in roubles, they are not so high and in most cases are very low, there are frequent delays in payments, bonuses and non-pecuniary social packages are but few. The two sectors are relatively separated from one another and the intersector labour migration is problematic.

Income policy in modern Russia

The financial policy includes such stages as the definition of its objectives, providing of the necessary amount of resources and the development of these most efficient ways, as well as the realization of concrete actions for achievement of the goals and objectives. The structure of such policies includes fiscal, tax, credit, investment components. So, the financial policy is a financial management, search for resources and ways to achieve these goals, combined with the influence on external factors on which the achievement of expected results also depends on.

Moreover, we distinguish quite separate areas as antitrust, fiscal, monetary, credit, tax, insurance and customs policy inside it. All of them are interrelated with each other, one affects the other, therefore they should be developed and implemented in close and continuous relationship with each other.

Inconsistency of antimonopoly and fiscal policy annually entails making decisions about rising of prices and tariffs for products and services of natural monopolies, which leads to the fact that during the implementation of already adopted budgets of all levels, first, lost income appears, and secondly additional expenses appears. So, the increase in tariffs for electricity and rail transport significantly reduces the income of the majority of enterprises and simultaneously leads to a rise in the cost of public services for educational institutions, medicine and culture, also leads to an increase in expenditures of budget.

I suppose that the goal of fiscal policy should be to increase or maintain the level of real income per capita, and on this basis, the provision of social standards of level of life in the country. At different stages of economic development, and in some regions it may be a situation where the objective of financial policy will temporarily be to save the achieved level of real income. For example, in Moscow, a further increase in the level of life is much higher than in other regions of the country, will lead to excessive inflow of migrants to the capital with exacerbation of all social-economic problems and therefore to significant budget expenditures for solution of them.

Resources of financial policy are:

Firstly, the amount of development of productive forces, ie, set of people who are at working age and who have certain professional, the fixed assets of enterprises of all branches of economic activity, and also natural resources that are located in the area;

Secondly, the amount of own financial capital;

Thirdly, the degree of development of the financial infrastructure.

Cooperation in the process of production of these three components forms all the major financial flows. This moment there is no currently planned regulation of all components of the financial resources policy.

The Russian Federation, as well as its most subjects, has one of the largest in the world productive forces, including human potential, production capacity of enterprises; huge reserves of proven minerals and forests. Underutilization of opportunities is continued with the lack of money needed for retraining people, modernization of enterprises, development of manufacture of new products, the creation of new facilities for the integrated development of better use of raw materials.

Development of the financial infrastructure is no less important than the growth of finance capital. Without it the funds will continue to be concentrated mainly in Moscow and partly in the largest cities of Russia. This process will lead to an inflow of excessive labor resources in these megalopolises, reduce of production facilities in other regions of the country, reduce of the growth, and then a fall in economic development in these regions and, then, to a decrease in state financial resources. Thus, these resources are the real basis of the financial policy of the Russian Federation.

Conclusion

So, we can make the following brief conclusions.

Distribution and use of income is an important economic process, providing the covering of the needs of entrepreneurs and also income formation in Russia.

Mechanism of profit sharing should be constructed in such a way as to do everything possible to improve production efficiency, to stimulate the development of new forms of management. Depending on the objective conditions of public production at different stages of development of the Russian economy the system of profit distribution has changed and has improved.

Economically grounded system of distribution of profit firstly should guarantee the fulfillment of financial obligations to the state and to ensure maximum production, material and social needs of the enterprise.

Formed approaches to the definition of financial policy can deepen the understanding of the theoretical aspects of this area of ??work.

The existence of a rational financial policy of the Russian Federation is a positive factor for the development of the economy of the state and, on the contrary, its absence slows down the development of the economy in specifics regions, as well as in the whole country.

This way, it can be said that financial policy of Russian Federation requires further improvement.

Sources of information

1. V.V. Gromyko - Microeconomics-1: Textbook - II-ed.-M.: 2014.

2. http://deepblue.lib.umich.edu

3. http://www.vevivi.ru

4. http://www.referatbank.ru

5. http://documents.worldbank.org

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