Theme 4 - Poverty and inequality Flashcards

Question

cons of UBI

Answer 1

1. Can Encourage Laziness or Living Off Benefits - Since UBI is unconditional, some individuals may choose to rely solely on it rather than seeking employment, reducing their contribution to the economy. - May lead to a decline in workforce participation, potentially lowering overall productivity and creating a culture of dependency among some individuals. 2. Can Reduce Labour Market Flexibility - UBI may decrease the willingness of workers to relocate for jobs or take up low-paid or demanding roles, as the basic income reduces the necessity to accept such employment. - Labour immobility could worsen skill shortages in certain industries or regions, negatively affecting economic efficiency and growth. 3. High Costs and Poorly Targeted - UBI is expensive to implement universally, and since it is distributed to everyone, even those who are financially well-off receive it. - This makes it less efficient compared to targeted welfare programs. - The strain on government budgets may require higher taxes or spending cuts in other critical areas like healthcare and education, potentially worsening overall welfare. 4. Inflation Concerns - Providing every citizen with a basic income could increase overall demand in the economy, leading to demand-pull inflation. This would erode the purchasing power of UBI over time. - Inflationary pressures might negate the benefits of UBI, particularly for low-income households, leaving them no better off than before.

Answer 2

tax on individuals assets or net worth, rather than income, eg savings, property

Answer 3

1. Lots of Revenue Generated for Government - Wealth taxes can provide significant revenue, as they target high-net-worth individuals with substantial assets. This revenue can fund public goods and services. - Enables governments to invest in education, healthcare, and infrastructure, potentially improving living standards and promoting economic growth. 2. Reduced Wealth and Income Inequality - By taxing the wealthiest individuals, a wealth tax narrows the gap between the richest and poorest, redistributing resources to create a more equitable society. - Helps to address social tensions and provides greater opportunities for low-income groups, contributing to social cohesion. 3. Can Target Windfalls - Wealth tax can be designed to target unexpected or unearned gains, such as inheritance or property appreciation, ensuring fairer taxation. - Prevents individuals from accumulating excessive wealth through unearned means, promoting fairness in the tax system. 4. Can Promote Efficient Reallocation - Wealth taxes may incentivize wealthy individuals to put their idle assets to productive use to offset tax liabilities. - Encourages investment in economic activities that generate jobs and growth rather than hoarding wealth in low-productivity assets.

Answer 4

1. Discourages Investment, Income-Generating Activity, and Growth - High wealth taxes can reduce incentives for individuals to invest or expand businesses, as returns are taxed heavily - This may stifle innovation and entrepreneurship, reducing overall economic dynamism and long-term growth. 2. Risk of Emigration (Brain Drain) - Wealthy individuals may relocate to countries with lower tax rates, taking their assets and economic contributions with them. - Leads to a loss of high earners, investment, and skilled labor, harming the domestic economy. 3. Tax Loopholes - Wealthy individuals often employ accountants and tax advisors to exploit legal loopholes, reducing the effectiveness of the tax. - Revenues generated may fall short of expectations, and perceived unfairness in the system could erode public trust. 4. Administrative Challenges (Assets, Valuation) - Accurately valuing assets like real estate, art, or shares is complex and time-consuming, leading to disputes and inefficiencies. - Administrative costs may offset the revenue generated, reducing the overall effectiveness of the tax.

Answer 5

an economic system in which it is difficult to escape poverty. - created due to a mix of factors, such as access to education and healthcare, - working together to keep an individual or family in poverty.

Answer 6

1. Depends on the Rate - The effectiveness of a wealth tax hinges on the tax rate. A high rate may generate substantial revenue but could discourage investment, while a low rate might fail to address inequality. - Striking a balance is critical—too high a rate risks emigration and reduced economic activity, while too low a rate may not justify administrative costs or achieve redistribution goals. ies or inefficiencies. 1️⃣ Difficulty in accurately valuing assets → Wealth taxes require up-to-date valuations of assets like property, shares, or art → These valuations can be costly, disputed, or manipulated → Taxpayers may understate value to avoid liability → This reduces effectiveness and may lead to enforcement challenges 2️⃣ Potential for capital flight → Wealthy individuals may relocate assets or themselves to countries with no/low wealth tax → This leads to reduced investment in the domestic economy → May worsen inequality and reduce the intended redistributive impact → Limits the tax’s ability to generate stable revenues 3️⃣ Horizontal equity concerns → Individuals with similar net worth may be taxed differently depending on asset liquidity → E.g., asset-rich but income-poor pensioners may struggle to pay → Creates perceived unfairness in implementation → May undermine public support for the policy 4️⃣ Low revenue relative to complexity → Despite targeting high wealth, revenue generated is often modest due to avoidance and evasion → High administrative costs may outweigh fiscal benefits → Alternative taxes (e.g., land value tax) might be simpler and more efficient 5️⃣ Political feasibility and long-term stability → Wealth taxes are politically unpopular among influential groups → This can lead to reversal or watering down over time → Limits long-term effectiveness and may create uncertainty in tax policy

Answer 7

Capitalism tends to increase inequality because: It rewards capital owners (those with assets) more than labor. Wealth accumulates among a few individuals or corporations, while wages for workers may stagnate. Economic growth under capitalism does not always result in equitable distribution of wealth.

Answer 8

1. Technological Change ➡️ Innovation increases demand for high-skilled labour ➡️ Higher wages for skilled workers widen the income gap ➡️ Low-skilled workers may face wage stagnation or unemployment ➡️ Increases income inequality between education levels 2. Globalisation ➡️ Manufacturing jobs shift to low-cost countries ➡️ Developed nations lose low-paid jobs, harming low-income workers ➡️ High-income workers benefit from increased capital mobility ➡️ Increases wage and income inequality within countries 3. Decline of Trade Unions ➡️ Weaker unions reduce collective bargaining power ➡️ Employers set lower wages for low/mid-income workers ➡️ Wage growth becomes uneven across the labour market ➡️ Inequality increases due to reduced wage compression 4. Tax Cuts for the Wealthy ➡️ Reductions in top tax rates increase post-tax income ➡️ Rich individuals accumulate more disposable income ➡️ Lower redistribution leads to widening income gaps ➡️ Inequality worsens due to regressive fiscal policy 5. Education Gaps ➡️ Limited access to quality education in poorer communities ➡️ Skills mismatch in the labour market ➡️ Lower employability and wages for undereducated workers ➡️ Reinforces cycles of poverty and inequality 6. Asset Price Inflation ➡️ Rising property and share prices mainly benefit asset owners ➡️ Wealthy households see greater increases in net worth ➡️ Those without assets (typically poorer) do not benefit ➡️ Wealth inequality grows over time 🔻 Reduction in welfare and public services → Austerity involved cuts to welfare spending (e.g. housing benefits, tax credits) → Low-income households lost a higher proportion of their income compared to the wealthy → Widening income inequality.