Distribution of Income Wealth Poverty and Inequality Flashcards
What is Income
A flow concept meaning the total earned over a pierid of time (usually a year)
what is Wealth
Wealth is a stock concept, it is the total value of all assets with market value a agent owns in a specific instant or time
3 Reasons for differentials in Income and wealth
- MRP - education/earning potential
- Ownership of financial assets (globalisation)
- inequality
what does 0 and 1 represent in relation to the Gini coefficient
0 - perfect equality
1 - perfect inequality
Absolute poverty meaning
Relative poverty meaning
- income earned are below the requirements to meet basic economic needs
- income earned in a society is below a given median ( less than 60% of median earnings)
what is the difference between equity and equality
Equity - fairness of distribution
Equality - equal distribution
list 3 causes of poverty
- Unemployment
- Poor public services (education and healthcare)
- Inequality (tax cuts for well off, wage differentials)
3 Reasons why tax revenue decreases as tax rate increases past a certain threshold
- Disincentive to work and be entrepreneurial
- FOP Emigration (high skilled workers leave)
- Tax avoidance
5 policy’s to redistribute income and wealth
- Taxation / benefits
- Minimum/Maximum wages
- Gov spending of education/healthcare
4 evaluation points on policy’s to redistribute income and wealth
- Equity vs Efficiency
- Is inequality bad
- impacts of incentives
- impacts on government finances
what is Universal Basic Income
Guarantees income to all the population within an economy regardless of current income employment or other factors
3 pros and 2 cons of UBI
Pros:
- overcome issues attached to means tested benefits
- increases entrepreneurship
- Reduces poverty
Cons:
- Very high cost and poorly targeted
- reduces labour market efficiency
list 3 pros a wealth tax
- huge potential for revenue (globalisation has increased wealth drastically)
- Reduce inequality (if used for redistribution)
- can target unproductive increases in wealth (windfalls) therfore making it productive. (will also cause people to seek productive assets)
list 2 cons of a wealth tax
- risk of business incentives (capital flight)
- administrive challenges
list 2 evaluation points on wealth taxes
- the tax rate
- the type of assets targeted
2 pros of inequality
- Encourages hard work and innovation (economics growth) (trickle down effect)
- diversification of labour markets therefore diversification of ideas leading to allocative efficiency
2 cons of inequality
- social cohesion and division
- limits economic growth (povery and inequality)
3 reasons why globalization has caused an increase in inequality
Uneven benifits across countries
Tax heavens
Concentration of wealth that appreciates faster than incomes
2 effects of poverty
Economic stagnation
Inequality
