Redistribution of Income and Wealth

Question 1

Progressive Tax

Answer 1

A tax where the higher the income of the taxpayer, the larger the proportion of income is paid in tax.

Question 2

Proportional Tax (Flat Rate Tax)

Answer 2

A tax where as the income of taxpayers increases, the same proportion of income is paid in tax.

Question 3

Regressive Tax

Answer 3

A tax where the higher the income of the taxpayer, the smaller the proportion of income is paid in tax.

Question 4

Policies to reduce inequalities and poverty

Answer 4

Raising minimum wage

Imposing maximum wage

Employers can be forced to provide benefits free to their workers eg sickness benefits, pensions and medical care, effectively increased wages.

Passing equal pay legislation

Passing trade union friendly legislation

Price controls on essential goods and services

Private sector goods and services can be provided on the basis of income

Question 5

The costs of redistribution: a free market perspective

Answer 5

Minimum and Maximum wages - High minimum wages may discourage employers from taking on workers. Low maximum wages may discourage workers from taking on more difficult and responsible jobs, likely also driving highly skilled labour abroad.

Maximum Prices - May lead to shortages and queues. Maximum prices also discourage production and investment.