Equity And Redistribution Of Wealth Flashcards
Q: What is equity in the context of income or wealth distribution?
A: Equity refers to the fair distribution of income or wealth and includes two aspects: horizontal equity (equal treatment for people with the same circumstances) and vertical equity (fair tax distribution between the rich and poor).
Q: What is horizontal equity?
A: Horizontal equity means that consumers and others with the same circumstances should pay the same level of taxation.
Q: What is vertical equity?
A: Vertical equity means that taxes should be fairly apportioned between the rich and the poor in society.
Q: What is efficiency in economics?
A: Efficiency is the optimal use of scarce resources to produce the maximum output at the lowest possible cost, producing goods and services most wanted by consumers.
Q: Why might there be a trade-off between efficiency and equity in policy design?
A: A policy promoting allocative efficiency may not protect the poor adequately, and measures like taxes on cigarettes or congestion charges can disproportionately affect low-income groups.
Q: What is absolute poverty?
A: Absolute poverty is a condition where household income is insufficient to afford basic necessities of life, such as food, shelter, and clothing, and the criteria for this do not change with economic growth.
Q: What is relative poverty?
A: Relative poverty occurs when households receive 50% less income than the average median income, and the criteria for this change with economic growth.
Q: What is the poverty trap?
A: The poverty trap occurs when an individual or family is better off on means-tested benefits than working.
Q: What are means-tested benefits?
A: Means-tested benefits are only paid to those on low incomes and are targeted to those most in need, such as income support and unemployment benefits.
Q: What are the disadvantages of means-tested benefits?
A: Means-tested benefits can create a disincentive to work, leading to a poverty trap.
Q: What are universal benefits?
A: Universal benefits are paid out to everyone in certain categories, often age-related, regardless of their income or wealth, such as state pensions and child benefits.
Q: What are the advantages and disadvantages of universal benefits?
A: Universal benefits may overcome issues of means-tested benefits but can result in money being paid to those who do not need it.
Q: What is Universal Basic Income (UBI)?
A: Universal Basic Income is an unconditional cash payment made at regular intervals to all citizens, regardless of their earning or employment status.
Q: What is a negative income tax?
A: A negative income tax is a system where the government pays money to those earning below an agreed annual benefit limit, resulting in a net benefit for lower earners and a tax payment for higher earners.
Q: How does a negative income tax work?
A: With a flat rate of taxation and a fixed annual benefit, those who pay less tax than the benefit amount receive the difference from the government, while higher earners pay the positive difference as direct tax.
