Microeconomics part 5- The Distribution of Income and Wealth: Poverty and Inequality Flashcards
Measuring equity:
Equity is a value judgement and can’t be measured
Measuring equality:
Equality is a positive concept and can be measured. Inequalities are not necessarily unfair, e.g. progressive tax system
Horizontal equity definition:
The identical treatment of identical individuals or groups in society in identical situations
Vertical equity definition:
The different treatment of individuals or groups which are dissimilar in characteristics
Absolute poverty definition:
When an individual or household’s income is insufficient for them to afford basic shelter, food and clothing
Relative poverty definition:
When people are poor in comparison to others
Causes of poverty:
- Disability
- Education
- Discrimination
- Unemployment
- Low wages
- Old age
- The poverty trap
- Imperfect information
Why are means tested benefits more desirable than universal benefits
More equitable
How to eliminate the poverty trap:
- Raise income tax threshold/ more progressive
- Benefits- means tested/ universal
- Education and training
- Minimum wage
- Trickle down
How does making the income tax system more progressive affect poverty?
- Reduces the extent of the poverty trap and provides more of an incentive for people to work
- Eval: If higher tax brackets have high tax rates there may be a fall in the tax revenue as there is a disincentive to work- Laffer curve
How does increasing the value of welfare benefits affect poverty?
- Reduces absolute poverty
- Very expensive for the government
- Acts as a disincentive to work
- The people who benefit the most pay the least tax
- Politically unpopular
How does cutting benefits affect poverty?
- Incentivises people to work
- Saves the government money they can use elswhere
- May increase absolute poverty
How does increasing pensions affect poverty?
- Politically popular
- High propensity to spend
- Low propensity to import
Lorenz curve definition:
A diagrammatic representation of the distribution of income and wealth
Gini coefficient definition:
A statistical measure of the degree of inequality of income and wealth
