6. Income and Wealth: Poverty and Inequality - Inequality, Policies to reduce it

Question 1

What are the possible policies the gov. may use to redistribute income/wealth?

Answer 1

1. Taxation2. Benefits; Universal Tested3. Min./Max. wages4. Legislation5. Gov. spending on education + training6. Gov. spending on healthcare

Question 2

How may tax be used to redistribute income/wealth?

Answer 2

Progressive income tax made more progressive - raise tax rates on rich & redistribute to poorReduce regressive taxes - taxes that burden poor more than rich - e.g. VATBUT;May discourage entrepreneurship among rich - reduce tax rev. overall

Question 3

How may benefits be used to redistribute income/wealth?

Answer 3

Raising benefits helps support the poor - means tested benefits (only to those who rlly needed & taken away when conditions improved)BUT;Increased risk of poverty trap - for means tested benefit ppl maybe incentivised to stay poor and on benefits rather than find work Increased fiscal impact on the gov.

Question 4

How may min./max. wage be used to redistibute income/wealth?

Answer 4

Min. wages can artificially boost low paid workers and reduce poverty for themMax. wages - e.g. capping bouses etc - act as price ceiling for rich - reduces inequalityBUT;Discourages entrepreneurship if there is a max. wage ppl can earn Min wages may create classical UE

Question 5

How may legislation be used to redistribute income/wealth?

Answer 5

Anti-discrimintation laws - reduces wage differentialsHiring/Firing restrictions for employersBUT;Increased cost to businessesDifficult to enforceHigh chance of gov. failure

Question 6

How may gov. spending on education/training/healthcare be used to redistribute income/wealth?

Answer 6

Help to improve skills - better productivity - higher MRP - higher wages and earning potential - decreased inequality and povertyBUT;Very expensive - gov. finances are badly affectedTime taken for the impacts of such changes to come in is long

Question 7

What are the potential evaluation points for the policies to redistribute income/wealth?

Answer 7

1. Incentives - what perverse incentives cld accidentally occur2. Can gov. finances cope with the costs3. Equity v Equality - all the policies are very fair but are they all efficient - min./max. wage - distorting markets isn’t efficient4. Gov. intervention is based on normative judgements about poverty etc. - is this the best basis for getting involved - increased chance of gov. failure5. Is the intervention needed? - is inequality always bad?