Government Intervention: Income and Wealth Equality

Government Intervention: Equity and Redistribution of Income and Wealth

• Means-tested benefits for elderly and young adults in the UK:

  • Suggesting means-tested benefits for elderly and young adults, using savings from the elderly to fund the young adult's, is likely to increase intergenerational equality.

• Reducing income inequality:

  • Additional government regulation of product and factor markets, increased progressive direct taxation alongside decreased indirect taxation are most likely to reduce income inequality.

• Poverty traps:

  • In countries where benefits are reduced as income rises, people on low income may face a poverty trap.

• Taxation on personal income:

  • Governments may increase highest rates of tax on personal income to improve equity.

• Reducing income inequality policies:

  • Increasing progressive income tax, and decreasing indirect tax, and increasing the availability of benefits are likely to reduce income inequality.

• Gini coefficient:

  • Strategies to decrease the Gini coefficient include progressive income tax systems and increases in transfer payments to the unemployed. A more regressive income tax system would likely increase the Gini coefficient.

• Poverty traps (more detail):

  • A poverty trap is a situation where a person or household has limited opportunities even though they want to improve their economic standing. The payment of benefits to low-income individuals that are reduced as income rises can result in a poverty trap.

• Policies to affect inter-generational equity:

  • Policies that can affect inter-generational equity can include changes in education maintenance allowances or changes in state pensions.

• Reducing poverty traps:

  • Policies that may reduce the incidence of poverty traps include increases in the national minimum wage or the expansion of universal benefits that do not change in value as income rises.

• Negative income tax:

  • Increasing the marginal tax rate of a negative income tax system will strengthen work incentives however the distribution of income will become less equal among those groups.

• Policy choices and equity:

  • Policies that consider both efficiency and equity are important when deciding macroeconomic policies. It's possible for equity to be considered more important than efficiency in some cases. Equity can also increase economic efficiency.

• Government welfare policy changes:

  • Changes to these policies reduce the number of people eligible for benefits and can reduce income inequality and poverty, or mis-spend their benefits.