Governments Policies to Tackle Poverty

Question 1

Governments can often intervene to try to alleviate poverty

Answer 1

The first 3 policies below redistribute income and wealth after its been earned. The final 2 policies try to change the amount of income people recieve instead.

1 Benefits

• These are used to redistribute income - tax revenue (mostly from higher incomes) is used to pay for the benefits of those who need them.
• However, as means-tested state benefits contribute to the poverty trap, governments might:
  a) Remove means-tested benefits completely. This would increase the incentive to work. However, at least in the short term, it would cause larger differences in income, and relative and absolute poverty would increase.
  b) Change means-tested benefits to universal benefits. But the cost of these extra benefits might mean that those on low incomes are taxed more.
  c) Reduce means-tested benefits more gradually as income increases.

2 State Provision

a) State-provided services e.g. health care and education, help to reduce inequalities caused by differences in income - e.g. someone on a low income can recieve the same health care as someone on a high income.
b) State-provided services also redistribute income because most of the money to pay for them comes from taxing ppl with higher incomes. But free access reduces the incentive to work and is expensive to provide.

3 Progressive Taxation

a) progressive taxation means a bigger percentage of tax is taken from workers with high incomes than those with low incomes. It helps to reduce the difference between ppl’s disposable incomes, reducing relative poverty.
b) But progressive taxation can contribute to the poverty trap. Also, if high income earners are taxed too much, some may move to a country where they’re taxed less. This will mean a loss of labour and money from the economy.

4 Economic Growth

a) Perhaps the most effective way of reducing poverty is through economic growth. This will mean jobs are created and unemployment will be reduced. It also tends to => higher wages, meaning the government will gain more tax revenue, which it can use to provide services.
b) However, economic growth can be difficult to achieve. It can also result in larger inequalities in income - e.g. economic growth might mainly benefit the rich so that they become even richer. It can also cause problems such as the using up of finite resources - which might mean more poverty and inequality in the future.

5 National Minimum Wage

a) National minimum wage, it its set at a sensible level, will reduce poverty amongst the lowest paid workers. It will also provide an incentive to work, and will help those on low incomes to afford a reasonable standard of living. A NMW can also counteract monopsony power - e.g. if an employer with monopsony power is paying low wages, resulting in workers being in relative or absolute poverty.
b) However, the NMW might => employers employ fewer ppl. This would => rise in unemployment, and therefore a rise in poverty. A NMW also doesn’t take into account that the cost of living varies depending on where someone lives, so the standard of living for ppl who are earning the NMW will vary depending on where they live (while anyone who’s unemployed won’t benefit at all).