Concepts of Personal Income (PI) | Disposable Income (DI) | Per Capita Income (PCI)
PERSONAL INCOME (PI)
The total income received by all individuals and households of a country from all possible sources before payment of direct taxes during a year is called personal income. In other words, it is the sum of all incomes actually received by individuals and households of a country during a year. It is never equal to the national income because the factors of production do not get all part of the income they earn. For example, corporate income tax or corporate profit tax should be paid to the government from corporate profit. This is not available to the shareholders. Similarly, some part of corporate profit is not distributed to the shareholders, which is known as the undistributed profit. Social security contributions such as provident funds, pension funds, etc., are deducted from the wages and salaries. On the other hand, transfer payments in the form of unemployment benefits, old-age pension, etc. are the income received but not earned.
The various sources of personal income are labor income, proprietor’s income, rental income, interest income, and transfer payments after payment of social security taxes. In other words, it includes income received by households and incorporated business sectors (sole proprietor and partnership businesses), inclusive of transfer payments.
PI = NI — Undistributed corporate profit — Corporate income tax — Social security contribution + Transfer payments
DISPOSABLE INCOME (DI)
The total income received by all individuals and households of a country from all possible sources after payment of direct taxes is called disposable income. It is equal to personal income minus direct taxes. It is also known as personal disposable income.
DI = PI — Direct taxes
Disposable income is available for households and persons for consumption. However, the total disposable income is not spent only on consumption because a part of it is saved. Thus,
DI = Consumption + Saving = C + S
PER CAPITA INCOME (PCI)
The average income of the people of a country in a particular year is called per capita income. It is expressed at the current prices. In order to find the per capita is income, the national income of a country in a particular year is divided by the population of the country in that year.
Per Capital Income for 2015 = Income for 2015/Population for 2015
The per capita income concept enables us to know the average income and living standard of the people. But it is not very reliable, because in every country due to unequal distribution of national income, a major part of it goes to the richer sections of the society, and thus income received by common people is lower than the per capita income.
