Income and Wealth Inequality Flashcards
equality
everyone is treated in the same way
extreme poverty
household lives on less than $1.90 a day and is unable to meet basic needs of life like food, education or housing
relative poverty
household income is 50% or less than the average income, meaning they have enough to meet basic need but cannot enjoy the same SOL as those with incomes above 50% of the average
equity
society distributes resources, such as income, benefits and wealth, fairly among people to give them equal opportunities
This might be achieved by taxing wealthier people more than poorer people and redistributing income and wealth
policies to promote equity
More progressive taxation (higher top rate, lower bottom rate/higher tax free allowance); lower regressive tax (VAT)
Benefits - means-tested; universal; UBI
Higher minimum wage
Legislation - discrimination; hiring/firing; leave
Government spending on education
Govt spending on healthcare
key word: MORE progressive tax - tax is lready progressive in most countries
evaluation of increasing top rate of tax
Distorts incentives - according to Laffer, the govt may actually collect LESS revenue if taxes rise too much due to (1) tax avoidance/evasion and (2) brain drain reducing employment
increases inequality esp if govt needs to divert resources from public spending to policing tax evasion, and receives less tax revenue from relocated businesses
evaluation of reducing regressive taxes
fiscal deficit increases, which could lead to austerity policy that will impact poorer people dependent on public services
or could mean increased borrowing, which will increase burden on taxpayers in LT and have a regressive effect anyways
define means-tested benefits
benefits paid only to those whose incomes fall below a certain level
define poverty trap
individual or family earns more income from benefits than from a low-paying job, reducing the incentive to work
define UBI
a regular, unconditional cash paument made by the government regardless of earnings or employment status
define universal benefits
benefits available to everyone in certain categories, often age-related, regardless of their income or wealth
define negative income tax
money paid out by the govt to people earning below an agreed annual fixed benefit limit
every person receives a fixed annual benefit, and if the tax paid on earning is less than this benefit, the person receives the difference from the govt
evaluation of offering benefits
- reduces incentive to work and creates poverty trap - greater strain on govt finances
- impact on govt finances - opportunity cost (could be better spend on ed/health to reduce inequality; borrowing, austerity)
define the minimum wage
legally set minimum amount that a worker must be paid. Intends to increase SOL and reduce relative poverty, as well as boost the incentive to work
pros of NMW
- reduce both absolute poverty, and relative poverty and inequality - higher SOL
- increases the fiscal dividend by increasing tax revenue and reducing spending on welfare benefits
- encourages training which increases productivity
- fights monopsony power
cons of NMW
- creates unemployment
- causes cost-push inflation
final NMW eval
- regional MW better
- better alternatives with more sustainable impact that target the root - improving ed/training
- extent of unemployment depends on WES and WED, as well as how high MW is
- effect depends on info govt has
- if productivity rises by more than wage cost, UE may not take place. Employment may actually rise
eval for legislation
- cost to businesses may force shutdown/relocation to where policy isn’t as strict, reducing employment opportunities
- depends on strength of enforcement
final EVAL: risk of govt failure may be high due to unintended consequences - cost of unemployment, lost tax revenue from firms
key word: ROOT CAUSE
how does spending on ed/training and healthcare promote inequality?
target the root of the problem by increasing productivity and hence MRP
will increase demand for more producitve workers since demand for labour derived from MRP
will increase eq. wage rate and current wages earned, as well as LT earning potential
this reduces difference between rich and poor in the LT. Not dependent on state policy like benefits and taxation that may change with government changes
eval for spending on training and ed
- costly to govt - opp cost? better use of funds?
- no guarantee workers will attend schemes if not motivated to increase incomes (could mandate but effect on freedom?)
- long time to have effect
how does spending on healthcare promote equality
if healthcare available more easily and cheaply, workers can receive treatment if they fall ill
this means they can recove more quickly and maintain a high level of productivity
they miss fewer days of work and can perform at an optimum level
this should increase their MRP and… (same explanation as for education)
final eval for policy to redistribute income/wealth
- incentives
- govt finances - if they can afford it, go ahead
- equitable, but are they efficient considering distorting of incentives and labour market outcomes?
- is the inequality so bad that it requires intervention? some income inequality is good, i.e. incentives to increase productivity
