capital labour and justice - redistribution

Question 1

what is market income?

Answer 1

the sum of all inocme recieved as earnings such as wages and self employment and all income received from buissness owned by the household or from investments

Question 2

what is disposable income?

Answer 2

it is the income that a family can spend after paying taxes and after receiving any monetary transfers from the government eg unemployment benefits and pensions

Question 3

what is final income?

Answer 3

the income that a family can spend subtract VAT paid and add the value of public services received

Question 4

what is the gini coefficient?

Answer 4

the most widely used measure of inequality, the scale is from 0 to 1. the higher the value, the higher the level of inequality. a value of 0 would mean perfect equality and a value of 1 would mean perfect inequality
it is the expected absolute gap between peoples incomes relative to mean income.

Question 5

when is the gini coefficient most sensitive?

Answer 5

the gini coefficient is more sensitive around the middle of the distribution than at the otop or bottom compared to other measures of inequality

Question 6

how can you calculate the gini coefficent using the lorenz curve?

Answer 6

the gini coefficient is calculated by the area between the lorenz curve and perfect equality straight line over the total area below the perfect equality curve

Question 7

what are the two types of taxation?

Answer 7

progressive taxation and regressive taxation

Question 8

what is progressive taxation?

Answer 8

when the direct effect of a tax or transfer policy (compared to what would happen in the absence of the policy gives a reduction in inequality

Question 9

what is regressive taxation?

Answer 9

if a policy direct effect causes a rise in inequality

Question 10

what does it mean for an expenditure or transfer to be progressive or regressive?

Answer 10

it must increase the incomes of poorer households by more than richer households in relative terms as this will guarantee that it will reduce the gini coefficient

Question 11

is VAT progressive or regressive?

Answer 11

income that is saved will eventually be taxed by VAY when it is consumed.
we can remove the savings behaviour by measuring it as relative to current income or expenditure. it appears to be regressive if measured as a proportion of current income but appears to be progressive if measured as a percentage of current expenditure

Question 12

what type of measure is absolutely inequalty?

Answer 12

it is a difference measure

Question 13

what type of measure is relative inequality?

Answer 13

it is a ratio measure

Question 14

what measure is more important for inequality, absolute or relative?

Answer 14

relative is more important measure

Question 15

what are the two main disagreements among economists about annual wealth tax/

Answer 15

1) difficulty in implementation
2) even if perfectly implemented, is it the right tool to achieve policy objective

Question 16

what are the three prinicipled rationale for wealth taxes?

Answer 16

a wealth tax in order to tax savers
a wealth tax when wealth has benefits beyond purchasing power
a wealth tax when wealth has negative externalities

Question 17

why would a wealth tax be used in order to tax savers?

Answer 17

Some people are better at saving than others (e.g. have higher financial literacy)
“Use it of lose it”: tax normal returns more than excess as it rewards (and encourages) entrepreneurial activity (Guvenen et al., 2019)

Question 18

why would a wealth tax be used when wealth has benefits beyond purchasing power?

Answer 18

if wealth has benefits to the wealth holder more than the consumption it can be derived from . although this is debateable- perhaps they simply have not found the thing to spend it on

Question 19

why would a wealth tax be used when welath has negative externalities?

Answer 19

if wealth confers status, and status is a zero sum game - it is relative position that matters
if wealth is harmful to others (although would have to be contingent on not spending the wealth