Equity in income distribution
Poverty
Causes
Low incomes
Unemployment
Poverty cycle
Low levels of human investment
Low levels of capital or land ownership
Consequences
Low living standards
Lack of access to healthcare & education
Social problems
Inability to realise full potential
Promoting Equity
Progressive taxation
Transfer payments
Price controls
Investment in human capital
Subsidised/direct provision
Universal benefits
Means-tested benefits
Wastage of resources: may not go to the people who need it most
May not be claimed due to social reasons (demeaning), reluctance to declare information, ignorance, complexities of claiming
Minimises income gap, but the poor might still not have access to basic necessities
The higher the rates, the more likely people will try to escape payment (moonlighting, self-employment, legal devices)
High marginal income tax rates have disincentive effects
Less savings, less investment opportunities
drives firms out of country, along w their capital
allocative inefficiency (underemployment)
lower rates of economic growth
Will increase equity only if tax revenue is used to provide merit goods/transfer payments
eg. bus passes for elderly, student concessions
eg. Comcare
burden on govt budget
Issue of estimating level of income where people are eligible
If based purely on income, ignores very special needs of many poor people (eg. poor living conditions)
When combined w progressive taxation - disincentive effect (poverty trap)
Transfer income from those who work and pay taxes to those who cannot work and need assistance
Rich are taxed proportionately more than poor
Government ensures healthcare & education are affordable for v low income groups
eg. progressive subsidies in SG based on hospital wards / residents in smaller and cheaper HDBs receive greater rebates on bills
Burden on govt budget, opportunity costs
Means-tested / universal
Tech advancements
Development of human capital
Developments in entrepreneurship
Long gestation period, planning & sustained commitment is not easy in ELDCs
Subsidisation by govt - burden on budget
Resistance to acquiring new skills (older workers/lacking basic education and literacy)