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Chapter 39

The document discusses equity and income redistribution, highlighting the importance of fair distribution to prevent market failure. It distinguishes between wealth and income inequality, defines absolute and relative poverty, and outlines government policies for redistribution, including means-tested and universal benefits, as well as a progressive tax system. Additionally, it addresses the role of unemployment and various policies aimed at reducing poverty and inequality.

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nilushasooriyaarachchi1005
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2 views

Chapter 39

The document discusses equity and income redistribution, highlighting the importance of fair distribution to prevent market failure. It distinguishes between wealth and income inequality, defines absolute and relative poverty, and outlines government policies for redistribution, including means-tested and universal benefits, as well as a progressive tax system. Additionally, it addresses the role of unemployment and various policies aimed at reducing poverty and inequality.

Uploaded by

nilushasooriyaarachchi1005
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 39

Equity and redistribution of income and wealth


Equity and policies towards income and
wealth redistribution
Equity
• Where the distribution of say, income or wealth is fair. In a market
economy, an individual’s ability to consume goods and services
depends upon their income and wealth and an inequitable distribution
of income and wealth is likely to lead to a misallocation of resources
and hence market failure. Some consumers might not be able to buy
goods and services at all.
Distinction between wealth and income inequality

• Wealth is defined as a stock of assets, such as a house, shares, land,


cars and savings. Wealth inequality is the unequal distribution of
these assets.
• Income is money received on a regular basis. For example, it could be
from a job, welfare payments, interest or dividends.
Absolute Poverty
Absolute poverty is when household income is below a certain
level. This makes it impossible for the person or family to
meet basic needs of life including food, shelter, safe drinking
water, education, healthcare, etc.
Income less than $2 per day.
Relative Poverty

Relative poverty describes circumstances in which people cannot afford


actively to participate in society and benefit from the activities and
experiences that most people take for granted.
• Government policies to redistribute income and wealth

Means Tested Benefits


A means test determines if a person or household is eligible to receive
some sort of benefit or payment.
• Job Seeker’s Allowance
• Income Support
These are in place to ensure people have a basic standard of living and
to help reduce the level of inequality in society.
• Universal benefits
These are benefits that available to everyone in the economy.
Example:
Child care benefits
State Pensions
Tax System
• Progressive income taxes and inheritance taxes.
• A progressive tax has an increase in the average rate of tax as income
increases. As income increases, the proportion of income taxed increases.
For example,. People have a personal allowance of £10,600 where tax is
not paid. For incomes below £31,785, people only pay the basic rate of
20%. For incomes between £31,786 and £150,000, people pay the higher
rate of 40%.
• This should help reduce inequality, because those on lower incomes pay
less tax. The tax is based on the payer’s ability to pay. Higher income
households are more able to pay higher rates of tax than lower income
households. Generally, direct taxes are more progressive.
• Inheritance tax means rich families cannot keep their entire wealth.
• Capital gain tax- tax impose on financial gain
3.Other Policies
• Provision of education and health
• Housing benefits
• Providing public goods
Unemployment is a major cause of poverty and inequality.
Unemployment can be reduced by:
• Government sponsored job creation schemes.
• A monetary or fiscal stimulus to aggregate demand and price stability
• Active labour market policies to increase employability, such as re-
training schemes.
• Welfare-to-work schemes which encourage labour market
participation.
• The tax and benefits levels
Increase in taxation will reduce the willingness of people of work.
• Immigration and emigration: These affect the long-run supply of
labour in an economy. Net inward migration may result in increase in
supply of labour

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