Inequality and Poverty

Question 1

define equality

Answer 1

everyone recives the same income (may destroy incentives)

Question 2

define equity

Answer 2

more fairness in the distribution of income

Question 3

absolute poverty vs relative poverty

Answer 3

absolute poverty: having no access to the basic necessities to sustain life

relative poverty: can afford basic necessities but living standards are well below average

Question 4

Single indicators of poverty

Answer 4

Poverty lines: an income level that is considered minimally sufficient to sustain a family in terms of food, housing, clothing, medical needs, etc.

Minimum income standards: the minimum income required for different types of families (based on number of people, ages, geographical area, etc.) to buy essentials in their respective basket of goods

Question 5

composite indicator of poverty

Answer 5

Multidimensional Poverty Index

Based on 3 indicators:
* health (measured by child mortality and nutrition)
* education (measured by years of schooling and school attendance)
* living standards (measured by cooking fuel, sanitation, drinking water, electricity, housing, and assets)

Question 6

difficulties in measuring poverty

Answer 6

• poverty has different meanings and approahes to measurement
• measurement problems
• overestimation/underestimation of the national poverty line

Question 7

causes of inequality and poverty

Answer 7

• inequality of opportunity
• different levels of resource ownership
• different levels of human capital
• discrimination
• unequal status and power
• govt. tax and benefit policies
• globalisation and technological change
• market-based supply-side policies

Question 8

impacts of income and wealth inequality and/or poverty

Answer 8

• low living standards
• lack of access to healthcare and education
• increased crime rates, conflict, and possibly revolts

Question 9

progressive taxes

Answer 9

as income increases, the fraction of income paid as taxes increases (increasing tax rate)

Question 10

regressive taxes

Answer 10

as income increases, the fraction of income paid as taxes decreases (decreasing tax rate)

Question 11

proportional taxes

Answer 11

as income increases, the fraction of income paid as taxes remains constant (constant tax rate)

Question 12

types of direct taxes

Answer 12

Personal income taxes:
paid on all forms of income, including wages, rental income, interest income, and dividends

Corporate income taxes:
taxes on the profits of corporations

Wealth taxes:
taxes on the ownership of assets (property taxes – based on the value of property owned – and inheritance taxes – based on the value of property inherited)

Question 13

direct taxes

Answer 13

taxes paid directly to the govt. by the taxpayer

Question 14

indirect taxes

Answer 14

taxes on spending on goods and services

Question 15

marginal tax rate

Answer 15

the tax rate paid on additional income, or on the last amount of tax paid

Question 16

average tax rate

Answer 16

tax paid divided by total income

Question 17

policies to improve income inequality

(other than taxation)

Answer 17

• investment in human capital
• transfer payments
• targeted spending on G&S
• universal basic income
• policies to reduce discrimination
• minimum wages