Who pays for whom? Elements of a macroeconomic approach to income inequality

National income is generated through national production in the form of ‘value added’; it is expended on goods and services in the form of ‘disposable’ or ‘net’ income. In this paper, I investigate what happens in between. The circuit of income flows generated in this way is comparable to the circuit of product flows, in its complexity. It can be analysed, so the tenet of the paper, in a similar way, by means of well-known tools of input–output (IO) analysis; this on the pre-condition, however, that you draw out the institutional framework of an economy in similar detail as is now customarily done for production units in IO analysis. Existing data do not suffice for the purpose, at present; this paper shows, by way of some exemplary calculations, what insight into the mechanism of national income distribution is gained if the necessary data, normally in the form of a large social accounting matrix, are provided.