What is the difference between personal income and private income?
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Dear Darshana
Both are different. Private sector income includes only factor income earned by private sector within domestic territory whereas private income includes private sector income, NFIA and all current transfers from within and outside the country. Thus, private income is a national and broader concept whereas income from domestic product accruing to private sector is a domestic concept.
Symbolically:
Private income = Private sector income + NFIA + All transfer incomes
Personal Income:
“Personal income is the sum of earned income and transfer income received by persons (households) from all sources within and outside the country. The point to be noted here is that personal income includes not only factor incomes which are earned from productive services but also transfer incomes (or payments) which are received without rendering any productive service. Thus, personal income is the sum of earned incomes and current transfer incomes. In other words, it is a receipt concept as compared to national income which is an earning concept.
It may be pointed out that national income is not the sum total of personal incomes since the former includes only earned incomes whereas the latter includes earned incomes as well as transfer incomes. Again, personal income is different from private income because o components of private income namely corporate tax and undistributed profit of corporate enterprise are not included in personal income.
The reason is that corporate tax goes to the government and undistributed profit is retained by the company, i.e., these two items are not Received by households.
Put in the form of equations:
Personal income = Private income – Corporate tax – Undistributed profit
The concept of Personal Income is helpful in knowing the potential purchasing power of the households. It is used to measure consumers’ welfare.
Hope this helps.