Income Inequality Flashcards
Define tax credits
Payment to top up the earnings of low income and disabled workers
What are the problems with tax credits
Expensive —> opportunity cost
Gap between benefits and tax credits + working must be high enough to push people to work —> if not the effort of working to gain the extra money may not be worth it
What are the problems with an improved benefit system
Acts as a disincentive to work
Unemployed stuck in unemployment trap
Opportunity cost
Depends on what caused the financing of the benefits system
How does improved education and training improve income inequality
Improves skill of the low paid
Enable them so supply labour into higher paid labour markets
What are the problems of improved education and training
Long term policy
Gov not always best informed about what is appropriate education and training
How does increasing the top rate of tax help to reduce income inequality
Helps reduce the difference between peoples disposable income
Revenue can be distributed in the form of benefits and tax credits
What are the problems with increasing the top rate of tax
Encourages tax avoidance/evasion (Laffer curve)
High income workers may relocate —> loss of labour and tax revenue for economy
How can salary caps reduce income inequlity
Restrict top earners income
Cannot earn above a certain amount more than the bottom earners in organisations
What are the problems with salary caps
Makes it difficult to recruit top quality staff —> problems for economy in long run
Can only be done in public sector organisations —> these workers would then move to work in the private sector
