Redistribution Of Income Flashcards
Define absolute poverty
A condition where household income is below a necessary level to provide the basic needs for survival
How can a government reduce inequality/poverty through progressive taxation
Using progressive taxation higher income earners pay a larger proportion of their income in tax, the government can redistribute this to lower income earners in the country reducing inequality and poverty
How can a government reduce poverty and inequality through education?
Through government investment in education, human capital can be improved and workers are more skilled, this may result in the person getting a (better) job in the future reducing inequality and poverty.
Define income inequality
Differences in income that exist between the different groups of earners in society - the gap between rich and poor.
Define relative poverty
Poverty that is defined relative to existing living standards for the average individual - household incomes certain level below the median income for that country - below 60% of median income.
Define progressive taxation, why is it used and give examples
Where the proportion of income paid in tax rises as the income of the taxpayer rises - aims to redistribute wealth among a population
Examples :
Income tax
Inheritance tax
Capital gains tax
Define regressive taxation
Tax system that places the burden of the tax more heavily on the poor. e.g. taxes on spending such as VAT
What is the Lorenz curve?
Income distribution can be measured using the Lorenz curve, graphical representation of the degree of income/wealth inequality in a country.
What are the different ways the government intervenes to reduce income inequality?
Taxation: progressive taxation such as income tax and inheritance tax
Transfer payments: payment of money for which there are no goods or services exchanged e.g. unemployment insurance benefits and welfare payments - helps people to afford basic needs
Provision of goods and services by government: e.g. education and health care
Legislation: such as NMW (National minimum wage).
How does investment in education reduce income inequality?
Access to quality education gives people the opportunity to get better jobs as they are more employable due to the range of skills they have - develop life skills that can prevent diseases.
Estimated in developing countries every added year of education can increase their future income by an average of 10%
Improves human capital which increases productivity
AO4 Very expensive and takes a long time to see returns on the investment and in developing countries funds for education are inadequate and not as helpful e.g. public school isn’t free, cost of books/uniforms
Great long-term
How does investment in healthcare reduce income inequality?
- Improved/free healthcare permits people to work productively which helps to increase economic growth.
- Health programmes increase life expectancy and reduces suffering.
- Children attend school more and can work for longer.
How does the government redistribute wealth through benefit payments?
- Systems use tax revenue to make direct payments to those on low incomes and who cannot work at all.
- Boosts incomes of the most at-risk people e.g. elderly, disabled, unemployed.
- Benefit payments reduce both absolute and relative poverty.
- Countries with large number of people in poverty - government’s GDP’s are low therefore tax revenue low and these systems don’t exist.
Reasons to reduce poverty/inequality?
meet basic needs - 10% of world population live in absolute poverty - if this was eliminated basic needs of everyone are met - avoid loss of life from starvation and children grow up healthily.
raise living standards - average living standards rise -boost economic growth as people are educated, employed = more tax revenue for government used to improve public services for everyone
ethical reasons - moral duty of both governments and people.
What are the impacts of poverty (SHEEP)
Society: Poverty could result in poor housing, crime and mental health issues. Social unrest becomes more common and it can create problems within communities. Malnutrition results in poor cognitive development.
Health: high rates of poverty are associated with lower life expectancies, poorer standards of health and underdeveloped infants.
Education: Sometimes, families have to choose between eating and getting an education for their children. This limits their ability to escape poverty as an adult,
Economy: Without a basic level of education, the higher paying jobs, with opportunities for career progression, are not accessible. This hinders the economy’s ability to improve its productive potential.
Poor sanitation: Many people living in poverty cannot afford basic levels of sanitation, and clean water is a rarity. This makes people more vulnerable to fatal diseases.
What are the different causes of poverty?
poor education - worse job, countries with no NMW/unemployment benefits results in relative poverty
structural employment - skills deteriorate leads to long-term unemployment
Health issues - take time off work discourages MNCs from investing in country
War
Natural disasters
Corrupt leader
