4.2.2 Inequality Flashcards
Define Income?
income is a flow measured over a given period of time.
e.g how much income was earned at the end of year
define wealth?
a stock of concept assets with market value that can generate income
e.g pensions,stocks,shares,houses and gold.
how are income and wealth linked?
with high incomes any surface income can be used to purchase assets.-assets generate more income
How does Age affect wealth and income?
The older somebody the greater the earning potential because they are more experienced,skills and productive. Therefore, they can demand for higher wages which means their wealth accumulation can be greater.
how does education affect wealth and income?
the more qualifications someone has the greater the earning potential of the individual is willing to be compared to those who don’t.
How does ownership affect wealth and income?
ownership of financial assets-those who are able to purchase financial assets, the stronger the employer the more access they are going to give individual workers pension schemes, therefore the distribution of wealth will worsen.
Ownership of property?
Those who have access to property are going to be extremely wealthy since the prices of these houses will increase over time. This is going to lead to a huge divide and worsen the distribution of wealth inequality.
inheritance
Define wage differentials?
labor markets in societies are not perfect. there are wages between different professions the greater the wages in professions the greater the inequality.
This is why the state has to intervene and provide benefits like minimum wages which will close this gap
what is the point of redistributing income and wealth?
when the gov intervenes in labor markets they do this because they want to redistribute income and poverty.
Taxation?
The whole point of this is to make progressive income tax systems is to tax richer more heavily. If the gov raises tax rates on those earning the highest income or raises the tax-free allowance.
-This will benefit the poor because the government would then use those revenues in the form of high benefits or uses it for education and healthcare services.
what is the reason for reducing regressive tax?
The regressive tax takes a huge proportion of income from poor workers in comparison to the rich. E.g cigarettes, fuel, VAT, and alcohol.
what is the evaluation of tax?
Laffer would argue that if you are distorting the rich, the incentive to make more money, gain skills, be productive, and be entrepreneurial will decrease. Since you know that the government will take most of your income through taxation resulting in lower tax revenue for the gov.- This applies to progressive tax
there could be a huge hit to gov finances especially when major developed economies regressive taxes of big earners for the gov, if the gov taxes a big fiscal hit it will cause uncertainty.
What is the point of benefit/ universal?
Where transfers are made by the gov to economic agents where there is no exchange of goods and services. Raising benefits will reduce your income and help the poor. This means benefits are needed for those who are in need. However, they get taken away when living conditions of incomes increase but universal stays all the time e.g child benefits.
What is the disadvantage of benefits?
Poverty trap-well if people know that they are getting support from gov, they may be disincentivized to seek a job and rather stay at home.
Gov finances- well the more someone receives benefits the more gov is having to spend, the greater the fiscal impact.
what is the point of minimum and maximum wages?
This could directly impact labor markets and change wages so minimum wages> above competitive outcomes to help with lower wages.
maximum wage- how much it can increase beyond a certain level-price ceiling
