The Role of Government: Redestribution

Question 1

Horizontal Efficiency

Answer 1

We are essentially looking at benefits and largely asking are there any gaps in coverage.
If a benefit is said to be horizontally efficient then there are no gaps in coverage.
Everyone that should get the benefit the benefit is getting the benefit.
If it is horizontally inefficient we say there are gaps in coverage; there are people who are eligible to claim but they are not getting for some reason.

Question 2

Vertical Efficiency

Answer 2

Is concerned with whether there are any leakages. If there is vertical inefficiency, you will see a benefit going to people who don’t actually need it.

Question 3

Horizontal Equity

Answer 3

Two people in the same circumstances should be treated the same way irrespective of characteristics that don’t matter.

Question 4

Vertical Equity

Answer 4

Typically about redistribution. Redistribution from the rich to poor. Vertical equity is concerned with the unequal treatment of unequal people. So we treat different people differently; if you are rich you should pay more than someone who is poor.