pov and ineq Flashcards
causes of income and wealth inequality
• Disproportionate amount of people without work, depends on income levels and how much an individual can afford to save
• Lack of capital- if you have more wealth then you can earn from that wealth
• Inheritance- maybe you are born into a poor family or rich family so that adds to your wealth
• Chance
• Government policy affects your income
• Degree of competition in the market of the product
education
privatisation
crowding out, gov ineffciencies
trade unions
tech
tax
benefits
discrimination
monopolies that firms have
eval of inqualtiy
rank the factors
causes of absolute poverty
savings gaps- Harrod domar model- could be applied to lower income households no property rights civil wars corruption primary product dependency weak economic policies poor infrastructure
policies to tackle inequality
reduction on primary product dependency monetary union trade unions supply side policies attracting fdi- lilke china and africa demand side policies but the gov needs tax revenue for that change in leadership
reasons for tax
Reasons for taxation:
• Correct market failure such as externalities
• Manage economy as a whole
Redistribute income
types of taxation
Progressive taxation- as income increases, so does the proportion paid in tax
Regressive taxation- proportion of tax falls as income rises
Proportional taxation- proportion of tax remains the same
tax and incentive to work
Incentive to work- Supply of labour is elastic so reducing income tax will increase peoples incentives to work, they will become more geographically mobile. Since they are more willing to work and increase in productivity and they then spend more, tax revenues would still increase. Work is an inferior good so the more you earn the fewer hours you are willing to work.
tax effect on income distrubution
• If you increase VAT then income distribution will become less equal because VAT and excise duties are regressive
• If there is a rise in revenue because of a rise in top rate of income tax then distribution will become more equal because its being paid by the higher earner
Rise in corporation tax should lower the shares of shareholders and their incomes would fall, but then tax revenue would fall.
laffer curve- axis and what does it show
tax rate/tax revenue- x/y
high levels of taxation but such idealistic means of living, you don’t know the highest rate of taxation unless you surpass it and that is a bad economic position to be in. Also depends on what other economic policies you have etc.
how does tax affect AD, AS, trade balance and FDI flows
shifts ad left
as goes up if vat increases, prices go up, people become redundant
• Trade balance
○ If income tax cuts then less disposable, less consumption and firms will need less capacity to meet demand therefore invest less. Short term the BoP will improve. But in the long term they will become less internationally competitive if they dont improve so can worsen over time
• FDI flows
○ Countries like the US lowering corporation tax to entice businesses, but tax revenue cannot be too low
individual effects of increase in taxation
more even distribtuon disincentive to work laffer curve- high tax might be good tho tax evasion and avoidance inefficiency in public sector- more of it crowding out more public expenditure
evaluation of tax
multiplier might expand
lower income families feel the effect more
might be good for budget deficit
worse quality public services
income distribution mre unequal unless progressive taxes raised
less productive capacity in the LR if not spent in the right areas
what factors influence development
education health immunization infrastructure democracy micro credit schemes access to tech
rise in commodity prices would have an impact on
inflation
employment
trade balances
real income and consumption
evaluation of rise in commodity prices
would have different impact on consumers and producers
price changes differs before/after the financial crisis
for developing countries it would change overtime- bigger impact than on developed countries
inflation might be offset if productive
