poverty policy

Question 1

evaluate the use of using a progressive tax (think about trickle down )

Answer 1

a progressive tax means that increasing taxes for rich people . this means they are less likely to spend . which can stop the trickle down effect. -lowering taxes for rich people will lead them to spend more money with this trickling down to other agents in the economy such as employment as labour is a derived demand
- this only depends if rich people spend instead of saving

Question 2

evaluate the use of using a progressive tax ( worker incentive)

Answer 2

By increasing the tax on higher income brackets, you are discouraging workers from earning more money. lower productivity
- causes a brain drain as workers will move abroad which means less tax revenue to spend on improving

Question 3

evaluate the use of benefits to reduce poverty/ inequality

Answer 3

the benefits system can disincentivize work.
This is bad for productivity and the economy.
Benefits that are means tested can also lead to a worsening of the poverty trap.
If people think that their benefits will go down if their income increases, they may intentionally not go up an income bracket.

causes the poor to stay poorer as they are better off unemployed then employed

Question 4

why can poverty be a good thing

Answer 4

• Poverty provides incentives, it encourages people to work to improve their lives.
  -The richest do well financially and these benefits can ‘trickle down’ into new investments which create job opportunities.

Question 5

why might the minimum wage be ineffective to reduce poverty

Answer 5

the minimum wage underestimates the cost of living differentials across a country so may be ineffective.