Week 7 - Inequality and Redistribution Flashcards

Question

For who is average tax rates highest for?

Answer 1

Those with higher incomes

Answer 2

A higher marginal tax rate reduces incentives to work

Answer 3

Increase in the average tax rate increases work. This is because leisure is a normal good

Answer 4

The height of the programme line on the vertical axis.

Answer 5

Simplest way to do so is to simply lower the programme line until the two areas are equal. Shallower line moves down until A and B are equal

Answer 6

The marginal tax rates faced are the same. The cost is the programme now provides a lower income for those with zero market income So its effectiveness in reducing poverty has diminished.

Answer 7

Pivot about the point. This now breaks even and provides the same income for those with zero market income. But the cost is now the incentives to work have been reduced at the lower levels of market income

Answer 8

Both ways of reducing costs have disadvantages – Either we reduce the effectiveness in reducing poverty Or we reduce work incentives. This is the “iron triangle” in action

Answer 9

It is an unconditional income paid to everyone flat tax rate on higher income

Answer 10

Simplicity Needs less bureaucracy to administer than most welfare states (political right) Gives people freedom and security to do what they want, whether it is studying or caring or being creative (political left)

Answer 11

Does not escape the ‘iron triangle’ -UBI of x% of average income requires tax rate of x% of income -Recent cost-neutral UK proposal is for 3.7k p.a. -What is affordable is not transformational, what might be transformational is not affordable Simple scheme cannot deal with complex circumstances - E.g. Differences in housing costs Is unconditionality desirable? -Possible adverse effect on work incentives if scheme is generous -People have responsibilities as well as rights (Atkinson participation income) -Conditional cash transfer schemes seen as successful (e.g. Mexico, Brazil)

Answer 12

A randomized control trial in US funded by Sam Altmann gave $1000 per month to some, $50 to others for 3 years Made people better off, but they worked less Health no better, quality of work no better

Answer 13

Anglophones have much higher percentage owned by top 1%. USA with around 20% Germany, Spain, France, Italy with much lower around 10%

Answer 14

Market Forces -Superstar theory Falling Marginal Tax Rates at the top Financial market de-regulation Increasing economic bargaining power of the rich ‘Capital is back’ - Piketty

Answer 15

Capital income is becoming more important again This will continue if r>g as return to capital higher than growth rate of the economy Consequences for inequality depends on the ownership of this capital

Answer 16

Factors causing greater inequality: - Richer save a higher proportion of their incomes - Larger fortunes get a better return on their capital But there are factors that go the other way: - Fortunes are spread out on death -Wars (not to be recommended) -Inheritance taxation -Wealth taxation The last two are Piketty’s policy recommendations to reverse likely rise in wealth inequality – but many countries have been moving in the other direction

Answer 17

- Market outcomes are often very unequal - Governments typically redistribute resources from rich to poor - Inequality has grown in many countries in recent years with the rich benefitting most from economic growth - But, ironically, recent period may have seen more people lifted out of poverty than any other period in history - Delivering inclusive growth is currently at the heart of debates about how the economy should be run in countries like the UK.

Week 7 - Inequality and Redistribution Flashcards

(41 cards)