Question

How can personal disposable income be derived from private income?

Answer 1

1. From Private Income to Personal Income: Private income is the total pre-tax income of the private sector, including factor income from all sources, current transfer payments, and interest on national debt, but it also includes incomes not directly available to individuals such as undistributed corporate profits, corporate profit taxes, retained earnings of foreign companies, and enterprise contributions to social security schemes. Personal income is the income actually received by individuals or households from all sources. It is obtained by subtracting the following from private income: undistributed profits (retained earnings of firms), Corporate profit taxes, retained earnings of foreign companies, and Contributions of enterprises towards social security schemes.
   Personal Income = Private Income − Undistributed Profits − Corporate Taxes − Retained Earnings of Foreign Companies − Social Security Contributions.
2. From Personal Income to Personal Disposable Income: Personal disposable income is the part of personal income available to individuals after paying personal taxes (like income tax, wealth tax) and miscellaneous receipts or payments to government administrative departments (such as fees and fines).
   Personal Disposable Income = Personal Income − Personal Taxes − Miscellaneous Payments to Government