Theme 4 - Poverty and inequality Flashcards

Question

cons of UBI

Answer 1

1. Can Encourage Laziness or Dependency UBI is given unconditionally regardless of employment status → → Some individuals may choose to rely solely on it instead of working → → This can reduce labour supply and economic output → → Creates long-term dependency and weakens the work ethic 2. Reduces Labour Market Flexibility UBI reduces financial pressure to accept undesirable jobs → → Fewer people may take low-paid or geographically distant work → → Labour shortages may emerge in essential but unattractive sectors → → Damages economic efficiency and limits growth potential 3. High Fiscal Cost and Poor Targeting UBI is paid to all, including high earners → → This makes it a very expensive policy for governments to fund → → Money is not concentrated on those most in need, reducing efficiency → → May require tax increases or spending cuts elsewhere, harming public services 4. Inflation Risks A universal income boost raises disposable income across the economy → → Increases aggregate demand, especially for consumer goods → → May lead to demand-pull inflation over time → → Erodes UBI’s real value and harms low-income households the most 5. Opportunity Cost of Funds Governments have limited resources and budgets → → Spending billions on UBI means less investment in healthcare, education or infrastructure → → These services may offer higher long-term returns and reduce inequality more effectively → → Poor allocation of resources could worsen long-term economic outcomes 6. Weakens Incentives to Upskill With guaranteed income, individuals may feel less urgency to improve their skills → → Reduces investment in human capital like education and training → → Leads to stagnation in productivity and innovation → → Slows long-run economic development and competitiveness

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

A poverty trap is a self-reinforcing cycle where individuals or households cannot escape poverty because any effort to improve their income or situation is neutralised by external factors (like taxation, loss of benefits, or low wages), keeping them in a state of economic deprivation. what causes it? Individuals receive low income → → Lack of savings and investment in education/skills → → Low productivity and job opportunities → → Income remains low, cycle continues ⚖️ 1. High marginal tax/benefit withdrawal rates Low-income individuals earn slightly more → → Lose significant benefits or face high taxes → → Little or no gain in disposable income → No incentive to work more, remain in poverty 🎓 2. Lack of access to education and training Poor households can't afford education or vocational training → → Low skill levels persist → → Only low-paid jobs available → Incomes stay below poverty line 💰 3. Low wages and underemployment Labour market dominated by low-paid, insecure jobs → → Even full-time workers earn below subsistence level → → Can't save or invest in assets → Remain stuck in poverty 🏥 4. Poor health and limited access to healthcare Poverty increases risk of illness and poor health → → Reduces ability to work or attend education/training → → Lower lifetime earnings and employability → Reinforces poverty cycle

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.

Answer 9

Poverty refers to a state of inadequate resources to meet basic needs, while inequality describes the unequal distribution of resources and opportunities within a society

Answer 10

an economic hypothesis that suggests as an economy develops, inequality first increases, then decreases. It's usually shown as an inverted U-shape on a graph with income per capita on the x-axis and inequality on the y-axis. In early development: industrialisation causes rising income inequality as urban workers earn more than rural ones. In later stages: rising education, progressive taxation, and social welfare reduce inequality.

Answer 11

🔺 1. Industrialisation phase → rising inequality Economic development begins → → Urban workers benefit more than rural workers → Wages grow faster in industry than agriculture → Income inequality increases 🔻 2. Structural change → falling inequality After a certain income level is reached → → More people access education and urban jobs → Government introduces progressive taxes and welfare → Income inequality begins to fall 🏛️ 3. Role of institutions → improved income distribution Development leads to stronger institutions → → Better labour laws and redistribution policies → Marginalised groups gain more access to opportunities → Reduces structural inequalities over time 📊 4. Evaluation: May not hold in all countries Globalisation and tech may favour the rich even in late stages → → Skilled workers benefit more than low-skilled ones → In some countries inequality rises again → Suggests curve may not fully reverse without active policy

Answer 12

The Environmental Kuznets Curve hypothesises that as an economy grows, environmental degradation first increases, then decreases — forming an inverted U-shaped relationship between environmental damage and income per capita. In early development: pollution increases due to industrialisation and lack of regulation. In later development: richer societies invest in clean tech and enforce environmental laws, reducing pollution.

Answer 13

🏭 1. Early industrial growth → rising pollution Economy grows in early stages → → Firms use dirty, cheap tech to cut costs → High levels of air, water, and land pollution → Environmental degradation increases with income ⚖️ 2. Rising income → demand for regulation As income rises further → → Citizens value clean air, water, and health more → Pressure government for stronger environmental laws → Investment in regulation and enforcement reduces pollution 💡 3. Innovation and clean technology Higher GDP enables research and investment → → Firms switch to greener production methods → Renewable energy replaces fossil fuels → Emissions and waste fall as economy advances 📉 4. Evaluation: EKC may not apply to all pollutants Not all forms of degradation follow the curve → → CO₂ emissions may still rise with GDP, eg look at America - 14.56 metric tonnes per capita per year → Outsourcing dirty production to poorer countries skews data → EKC depends on political will, not just income

Answer 14

- Lewis model assumes structural change (rural to industrial labour) leads to long-term growth - But this industrialisation can cause heavy environmental degradation early on - EKC suggests this may reverse in later stages as income rises and green tech is adopted - Therefore, Lewis Model’s negative environmental effects may be temporary — only if growth is inclusive and sustained

Answer 15

⚖️ 1. Not Everyone Will Choose Laziness UBI critics claim it reduces work incentives → → But evidence from pilot schemes (e.g. Finland) shows most people still choose to work → → People may use UBI to retrain, care for others, or pursue meaningful work → → So the extent of dependency may be overstated and depends on individual motivations 📍 2. Labour Market Flexibility Depends on UBI Level A high UBI may reduce willingness to take low-paid jobs → → But a modest UBI may simply offer basic security without removing job incentives → → Could be paired with policies like training programs or regional mobility support → → So effects on labour immobility depend on policy design 💰 3. Cost Can Be Offset or Managed UBI is expensive to fund → → But replacing multiple welfare programs could reduce admin costs and complexity → → Wealth taxes or closing tax loopholes could fund UBI progressively → → So affordability depends on political will and how UBI is financed 🔁 4. Inflation Not Guaranteed UBI may increase demand → → But if there’s spare capacity in the economy, this won’t immediately cause inflation → → Also, if UBI replaces welfare spending rather than adds to it, demand may not rise sharply → → The inflation risk depends on timing, design, and overall economic context 🔄 5. Opportunity Cost Depends on Policy Priorities Spending on UBI means less for other services → → But UBI could reduce demand for healthcare or criminal justice by reducing poverty and stress → → In the long run, it might save public money and boost wellbeing → → So the opportunity cost may be lower than assumed, especially if UBI is preventative 🧠 6. Upskilling Incentives Can Be Encouraged UBI might reduce urgency to upskill → → But it could allow people time and space to pursue education without stress → → Governments could offer additional upskilling incentives alongside UBI → → So this risk can be mitigated through complementary policy

Answer 16

💼Differences in Asset Ownership Wealthy individuals own more appreciating assets (e.g. property, stocks) → → These assets grow in value over time due to capital gains and reinvestment → → Lower-income households typically lack access to these assets and rely on wages → → Over time, this leads to a widening wealth gap between asset owners and non-owners 📚Education and Human Capital Individuals with higher qualifications and skills tend to earn higher lifetime incomes → → They're more likely to save and invest a portion of their income → → This investment generates returns, increasing personal wealth → → Those without access to quality education remain trapped in low-income, low-wealth cycles 🧾 Inheritance and Intergenerational Wealth Transfer Wealthy families pass down property, businesses, and savings → → Children start with financial advantages (e.g. home ownership, university funds) → → Poorer families cannot do the same, creating an unequal starting point → → This entrenches intergenerational inequality in wealth accumulation 🧾Taxation Systems and Loopholes Regressive tax systems (e.g. low capital gains tax, inheritance tax loopholes) benefit the wealthy → → High-income groups can legally reduce tax through avoidance strategies → → Less redistribution means fewer public funds for services that help the poor → → Leads to increased post-tax wealth inequality 🧑‍💼Labour Market Structure Decline in trade union power and growth in flexible/low-paid jobs → → Bargaining power of lower-paid workers weakens, limiting wage growth → → Meanwhile, executives and shareholders benefit from rising profits and bonuses → → Results in an unequal distribution of income that translates into unequal wealth

Answer 17

Wealth inequality is the uneven distribution of assets (like property, stocks, and savings) across a population, while income inequality refers to the uneven distribution of income (wages, salaries, and other earnings)

Theme 4 - Poverty and inequality Flashcards

(41 cards)