lecture 6

Question 1

How much redistribution does policy do in UK?

Answer 1

-it is a concern of gov to understand the extent of poverty and inequality
–how do we want to balance out, to achieve more equity at the least efficiency cost
–HOWEVER the policies come at some efficiency costs, they change people incentives for work or disincentives for example operating efficiency (equity efficiency trade off

Question 2

social security (pensioners+worjing are and children)= 22.4%

Answer 2

-mainly cash benefits to help the poorest and most vulnerable in society
-mean tested
-social efficeincy cost

Question 3

working age and child secutrity 10.2%

Answer 3

-insure that children don’t grow up in poverty or provide insurance to adults who don’t end up in the labour market or disabled= social EFFICIENCY COST THAT THEY HAVE, THE WAYS THAT THEY GIVE DISENCENTIVES FOR PEOPLE TO ENGAGE IN THE LABOUR MARKET, –

-to what extend do we want to ensure people and provide social protection What IS THE COST AND HOW MUCH TO

Question 4

unemployed benefits

Answer 4

-biggest risk to fall into poverty
-low income, job seeking allowence
-MORAL HAZARD= disincentive to become employed because you will lose your benefits
- people on low incomes and without a job (like either more protection to people
falling into poverty or just redistribution and less inequality)

Question 5

SICK AND DISABLED

Answer 5

-increasing recently
-hard to assess who to get it and how long to be in for. disabled people much likely to be in poverty, they have greater needs

Question 6

-jobseeker’s allowance

Answer 6

-small, but well targeted

Question 7

changes in the benefits over the years

Answer 7

-less generous, but more spending because more people are eligible for them
-less benefit for unemployed because less unemployment now but a big increase in the blue (in work benefits)

Question 8

Progressive policy

Answer 8

-higher income households pay proportionally more (or benefit less) than lower income households
-redistributs from rich to poor= reduce inequality and might reduce poverty

Question 9

regressive policy

Answer 9

-lower income households pay proportionally more (or benefit less) than higher income households
-this redistributes resources and increases income inequality, doesn’t reduce relative poverty

Question 10

Progressive taxes

Answer 10

-taxes= on income
-taxes on spending= can be both (no tax of food= good for poor), depending on the type of consumption that they apply to
benefits= means tested benefits, proggressive by design
-Universal cash benefits are typically progressive (because they are a higher % of income for poorer households) but not as progressive as means-tested benefits

Question 11

UK TAXEs

Answer 11

-income tax (direct tax) 57% of gov revenue- progressive
=Poorer people are paying relatively less of their income – progressive tax system, a lot of redistribution

-taxes on goods and services (indirect tax) = VAT, duties on alcohol, tobacco, fuel, 27% of rev
=the poorest 20% of households pay more in indirect taxes as a share of their income than the richest= driven by consumption patterns, richer save and invest as well

Question 12

meanstested benefit

Answer 12

-terget a specific group= unemployment benefit, income support and housing benefit
-as the income rise, they get less = inefficiency cost disincentive, if you work for 1 more hours will get the same £10 but less benefit- returns decline

Question 13

universal benefit

Answer 13

-available to everyone, regardless of income= healthcare and education
-no cash benefits in the UK are universal
-child benefit and disability benefit are close to universal (available up to a high level of income)

Question 14

mens-tested benefits

Answer 14

-good at targeting the groups= low-income households
-provide disincentives to work (moral hazard problem)
-stigmatise recipients
- sometimes people don’t take up means-tested benefits. People have to apply for them, a lot of controversy about how to design these systems and how to prove things and encourage people

Question 15

universal benefits

Answer 15

• not well targeted at low-income households- deadweight
• they are usually very expensive and have high deadweight cost
• they don’t have the problem of stigmatising recipients – in comparison to means- tested
• take up tends to be higher

Question 16

Taxes and benefits are redistributive

Answer 16

-The tax and benefit system helps people smooth consumption over their lifetime
A LARGE PART OF THE EFFECT OF TAXES AND BENEFITS IS TO REDISTRIBUTE ACREOSS A PRESON’S LIFETIME
-REDISTRIBUTIVE AMONG PEOPLE IN ORDER TO SMOOTH THEIR INCOME
– they reduce the income of high earners and increase the income of low earners
- people and households earn less at some points in time and more at other times
-kids and old people and take away from rich= they also use public services more at some times (education when young, healthcare when old)
–smooth income over your lifetime from moments when your income is low (student) to high (income equivalised)

Question 17

Pre-distributive policy =before

Answer 17

• Can policy instead intervene before income is earned (pre-production) to increase incomes at the bottom, and moderate incomes at the top, so that not so much inequality arises in the first place
  e.g. education, education when people are young, so they aren’t poor when they get older
• this may be lower direct efficiency costs (though we still have to raise money to pay for the spending)