7.3 Government Policies To Alleviate Poverty And To Influence The Distribution Of Income And Wealth

Question 1

What are some ways the government can alleviate poverty and influence the distribution of wealth?

Answer 1

• There can be income redistribution and wage equality through government intervention.
• For example, inheritance tax means rich families cannot keep their entire wealth.

Question 2

Give some examples of times when the government had influenced the distribution of wealth?

Answer 2

• Over the past century, sustained economic growth has helped reduced pre-War poverty in Britain, since wealth was redistributed to the poorest.
• China’s rapid economic growth between 1985 and 2001 helped 450 million people be lifted out of poverty.
• Similarly, India had strong economic growth in the 1980s and 1990s, and has
  had significant falls in poverty rates

Question 3

What taxes could the government employ to alleviate poverty and influence the distribution of income and wealth?

Also evaluate

Answer 3

• Governments could employ progressive taxes, such as higher rates of income tax for the richest earners.
• As income increases, the proportion of income taxed increases.
• This should help reduce inequality, because those on lower incomes pay less tax. - The tax is based on the payer’s ability to pay.
• Higher income households are more able to pay higher rates of tax than lower income households.
• Generally, direct taxes are more progressive.
• Progressive taxes allow the government to reduce regressive taxes and raise welfare payments.
• However, this could reduce incentives to work harder and earn more, and it
  could result in a fall in government revenue, as shown by the Laffer curve.

Question 4

How does the UKs NMW alleviate poverty and influence the distribution of wealth?

Also evaluate

Answer 4

• The UK has a National Minimum Wage which ensures all workers can access minimum standard of living
• This aims to prevent employers exploiting their workers by paying them low wages, and it prevents people falling into extreme poverty.
• However this can increase unemployment (youth unemployment due to lack of skills)

Question 5

How might governments intervene to distribute wealth and alleviate poverty in developing countries?

Answer 5

• In developing countries, governments might improve human capital by making education more widely available
• They might try and diversify the economy in order to stimulate economic growth and job creation.
• For example, countries such as Sri Lanka tried to develop their tourism industry.

Question 6

How might governments expenditure help to alleviate poverty and influence the distribution of wealth?

Also evaluate

Answer 6

• government spending on housing and the provision of public services, such as
  education and healthcare, helps provide equal opportunities for people from all income backgrounds.
• This ensures that even those on low incomes can afford a good standard of
  healthcare and education.
• By providing these services, the government ensures that all members of society can achieve a minimum standard of living.
• It can also increase productivity and therefore the MRP of workers, enhancing likelihood of employment opportunities.
• However, these policies are expensive for governments and may take some time to have an effect

Question 7

What is another way the government can use expenditure to redistibute income/wealth?

Answer 7

• The government could spend more on welfare payments for the unemployed (JSA)
• Increasing transfer payments
• However, there is a risk of poverty trap and gov finances could be used elsewhere

Question 8

How can we evaluate policies to resdistriute income/wealth and poverty alleviation overall?

Answer 8

1. Think about incentives-workers etc.
2. State of gov. finances-sustainabliity
3. Considering equity vs efficiency-may be more inefficient outcomes
4. Normative judgements
5. Government failure
6. Is inequality always bad? does it require intervention

Question 9

What is universal basic income?

Answer 9

• A welfare policy that guarantees a monthly income to everyone in the population regardless of their current income, employment or other factors
• can help cover basic needs of individuals and is funded through taxation/borrowing

Question 10

What are the benefits of UBI?

Answer 10

• Supports those unemployed
• Overcomes problems with means tested benefits
• Always an incentive to work
• Everyones eligible
• Supports socially benefical activity
• Can support entrepreneurship

Question 11

What are the cons of UBI?

Answer 11

• Can encourage laziness by living off benefits
• Can reduce labour market flexibility (occupational and geographical immobility)
• High cost and poorly targeted
• Inflation concerns

Question 12

What is a wealth tax?

Answer 12

• Tax on an individuals net worth or assets rather than their incomes
• e.g. savings, property
• can be progressive and set at varying thresholds

Question 13

What are the benefits of a wealth tax?

Answer 13

• Government earns significant amount of revenue (can reduce budget deficit, national debt and improve gov finances)
• Reduce wealth/income inequality (gov revenue targeted towards welfare payments, education, healthcare)
• Can target windfalls
• Can promote efficient re-allocation of wealth

Question 14

What are cons of a wealth tax?

Answer 14

• Discourages investment, income generating activity and growth (if taxes are too high)
• Risk of emigration (people move to places with lower wealth taxes)
• Tax loopholes (can cause tax avoidance/evasion)
• Admin challenges (assets, value?)

Question 15

How can wealth tax be evaluated overall?

Answer 15

• What is the rate of tax?
• What assets are chosen to tax? (hard to design)
• How easy/difficult is it to enforce?