Redistribution of Income Flashcards
(10 cards)
What is income inequality?
Differences in income that exist between the different groups of earners in society (the gap between the rich and the poor).
What is absolute poverty?
Absolute poverty- Where people do not have enough resources to meet all of their basic human needs.
What is relative poverty?
Relative poverty- The standard of living is below the typical living standards in that society.
In the EU it is 60% of median income.
What are the reasons to reduce poverty and inequality?
Meet basic needs:
Raise standards of living:
Ethical reasons:
What is tax burden?
Tax burden- particular costs to the individual
What is progressive taxation?
PROGRESSIVE TAXATION- Where the proportion of income paid in tax rises as income rises.
What is regressive taxation?
REGRESSIVE TAXATION- Where the proportion of income paid in tax falls as income rises.
What are the advantages of progressive taxation?
Reduce inequality as those on higher incomes will be paying more tax.
Increase government revenue, which could be spent on provision of public services or welfare payments to reduce inequality.
If low income work has a low rate of tax, it encourages people to enter the labour force, reducing poverty.
What are the disadvantages of progressive taxation?
Not practical to implement as unpopular.
Disincentive for higher earners
Effectiveness depend on level of taxation
Combination of measures may be required to tackle poverty and inequality.
High corporation tax may discourage investment
How is Redistribution through Benefit Payments done?
In most developed countries, governments have a welfare system, which is used to redistribute income in favour of the poor.
Tax revenues are used to make direct payments to those on low incomes and those who cannot work. Eg unemployed, disabled, sick, single-parent families, elderly and those on very low incomes.
These payments help boost incomes of the most at risk in society. Such payments reduce absolute and relative poverty.
In countries where absolute poverty is high, there are rarely any systems that redistribute income this way.
