Redistribution of Income flashcards
Define income inequality
Differences in income that exist between the different groups of earners in society, that is, the gap between the rich and the poor
Define absolute poverty
Where people do not have enough resources to meet all of their basic human needs
Define relative poverty
Poverty that is defined relative to existing living standards for the average individual
Define progressive taxation
where the proportion of income paid in tax rises as the income of the taxpayer rises
Define regressive taxation
tax system that places the burden of the tax more heavily on the poor
Why are there huge differences in incomes?
- Workers with good education or with natural talent tend to earn more
- People who don’t work (pensioners) receive lower incomes than those in employment
- People who own property and shares enjoy extra income like rents and interest
Reasons to reduce poverty and inequality?
- To meet basic needs
- people in absolute poverty starve to death - To raise living standards
- reducing poverty can raise living standards leading to more people being educated and improve economic growth globally resulting in more employment, more disposable incomes, more tax revenues for gov which can be spent on improving public services. - ## For ethical reasons
What do the government do to reduce poverty and inequality?
- Progressive Tax
- Redistribution Through Welfare Benefits
- Investment in Education & Health Care
Why should there be investment in education and healthcare?
if people are educated and are able to develop a range of skills (reading, writing, communication, evaluation and language) they are more employable. Schools offer children a safe and supportive environment where they can learn life skills that can help them prevent diseases.
Schools can offer lifesaving vaccines, fresh water and nutrient supplementation.
However, education is very expensive and the returns on the investment can take many years to realise. Funds for education in developing countries may be inadequate
Investment in health care helps reduce poverty as health programmes can increase life expectancy and reduce suffering which are some key indicators of poverty.
- If children are healthier, their attendance at school is higher. If people live longer, they are more likely to save for their retirement which increases the flow of funds for investment
- If people are healthier, they will be more productive in the workplace helping to increase economic growth
why do you government to provide benefit payments?
In order to reduce income inequality and to meet basic needs
Advantages of a progressive tax system
- Governments can maximise on tax revenues when collecting more tax from ones who have the highest amounts of money
- The government can use this tax revenue for provision of public services resulting in positive economic growth
- Using a progressive tax system reduces the tax burden on people who can least afford to pay
Disadvantages of a progressive tax system
A disadvantage could be that it doesn’t promote equality among individuals that are high-income earners which may eliminate individuals’ incentives for searching for a job that offers a higher income resulting in decreased economic growth as people will have lower disposable incomes to spend and the quality of goods and services may fall
Advantages of a regressive tax system
An advantage could be that it is easier to administer and calculate than progressive tax
It may also be more politically popular as it can be seen as “fair”
Regressive taxes may be less likely to cause economic distortions than progressive taxes
Disadvantages of a regressive tax system
Regressive taxes can place a greater tax burden on people who are least able to afford it
Regressive tax may cause more people to spend less money which can lead to decreased economic growth
Regressive takes can lead to increased income inequalities leading to low-income earners being less able to afford basic needs whilst only a small proportion of a high-income earners’ is used
Why do we have to meet basic needs?
if absolute poverty can be eliminated, the basic needs of people will be met leading to less death from starvation hence, allowing children to grow up healthily resulting in sustainable growth
