Inequality Essay Flashcards
Introduction to Inequality
The United Nations defines inequality as the state of not being equal, especially in status, rights, and opportunities. Inequality refers to how economic variables are distributed among individuals. It has largely been concerned with inequalities in standards of living, such as in income, wealth, education, health, and nutrition.
What are the types of Inequality
Types of inequality include Income Inequality, which refers to the distribution of income amongst a population. The less equal the distribution, the higher income inequality is. Other types of inequality include wealth, racial, and gender inequality.
What are the causes of Inequality
Inequality is caused by a number of factors, which leads to the various forms of inequality previously discussed. Differences in wealth is a common cause which leads to inequality, as people with wealth are able to obtain an income other than from their own labour. This can be due to inheritances or trust funds. Differences in ability and attitude often lead to inequality, as people differ in intelligence and have different capabilities and aspirations. Causes of income inequality can be caused by differences in qualifications, hours worked, or job utility. Household consumption and number of dependants often causes high levels of inequality, as the greater the number of dependants relative to income earners, the poorer the average household member will be, considering other things being equal. Degree of government support has great relations to inequality, as the greater the support for the poor, the less will be the level of inequality in the economy. Lastly, various forms of discrimination cause inequality, such as discrimination by race, sex, age, or social background.
Discuss Measuring Inequality
Measuring inequality is a difficult task as inequality has no unambiguous dimension. The problem is that a single inequality metric cannot definitely tell us about the overall shape of the income distribution.
What measures are used to measure Inequality
The two most widely used methods for measuring income inequality are the Lorenz Curve and the Gini Coefficient. The Lorenz Curve is a graphical representation of the distribution of income or wealth. It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution. It is quite useful for showing the change in income distribution over time. However, the problem with simply comparing Lorenz Curves by eye is that it is imprecise. This problem is overcome by using Gini Coefficients. The Gini Coefficient, also known as the Gini Index or Ratio, is a measure of statistical dispersion intended to represent the income inequality or the wealth inequality within a nation or a social group. The Gini coefficient was developed by statistician and sociologist Corrado Gini. They have the advantage of being relatively simple to understand and use, while providing a clear way of comparing income distribution either in the same country at different times, or between different countries.
Discuss measuring wealth inequality
Measuring wealth inequality is difficult. Being a stock of assets, it has an easily measurable value only when it is sold. Secondly, individuals are not required to keep any record of their assets. Only when people die and their assets are assessed for inheritance tax does a record become avail- able. Therefore, official statistics which can be used to measure wealth inequality are thus based on HMRC data of the assets of those who have died that year.
Discuss reducing inequality
In order to minimise and mitigate inequality in society, the government makes us of various taxes and benefits. These aim to redistribute income and achieve social efficiency through the minimisation of inequality.
discuss taxes to reduce income inequality
Taxes that are commonly used to reduce income inequality are Progressive, Regressive and Proportional Taxes. Progressive Taxes follow the path that as people’s income rises, the percentage of their income paid in the tax rises. Conversely, Regressive Taxes follow the path that as people’s income rises, the percentage of their income paid in the tax falls. Lastly, Proportional Tax follows the path that as people’s income rises, the percentage of their income paid in the tax stays the same. If taxes are to be used as a means of achieving greater equality, the rich must be taxed proportionately more than the poor. The degree of redistribution will depend on the degree of ‘progressiveness’ of the tax.
what problems can arise from taxes
However, problems can arise when using taxes to mitigate income inequality. Examples include tax evasions and avoidance, or undesired incidence of taxation. Both may inevitably reduce the positive impacts which are aimed as income may not be actually redistributed due to the burden of tax falling on the wrong parties.
discuss benefits to reduce income inequality
Secondly, Benefits and Subsidies may be used to reduce income inequality in the UK. These are payments from the government to certain parties of low incomes, or to meet specific needs with specific aims. Benefits can include Cash Benefits such as “Means Tested Benefits” , which depend on an individual’s income and can include housing benefit, or “Universal Benefits”, which are available to anyone disregarding income levels and can include state pension. Secondly, Benefits can include Benefits in Kind such as free or subsidised goods and services. The two most common items which are subsidised are health care and education.
discuss the poverty trap
It is important to keep in mind the possibility of entering into a poverty trap. This occurs when the combination of increased taxes and reduced benefits removes the incentive for poor people to earn more. The more steeply progressive this combined system is at low incomes, the bigger is the disincentive effect.
