Econ for public policy week 3

Implications of lower earnings by females

gender inequalities also reduce social efficiency and hence social welfare

1. womens talents are not mobilised for economics production in the market sector to the same degree as men’s

2. They work less and make less investments that are productive in work in expectation of lower future return

3. care work taht women do is largely unpaid, so not accounted for in GDP e.g a parent looking after their own child does not add to GDP while a parent that pays someone else to do that is measure in GDP

What policies could potentiall reduce gender inequalities?

1. regulation- such as discrimination rules and parental leave rules

2. subsidies to cost and provision of children- weve seen that gender pay gap increases markedly after childbirth

3. changes in social norms around home production childcare and housework.

How much redistribution does policy do in the UK- social security

Social security is spending that provided mainly cash benefits to help the poorest and most vulnerable in society, most social security is means tested

types of social security in the UK:

1. social security (pensioners) 12.2% spending e.g state pension, system is changing now mainly based on past work history, now has more of a means-tested component

2. social security (working-age and children)- 10.2% spending - includes benefits for families with children, benefits for unemployed people, benefits for people on low incomes, benefits for sick and disabled people.

How much does existing policy redistribute?

1. A policy is progressive if:

Higher income households pay proportionally more (or benefit less) than lower income households: this redistributes resources and might reduce poverty and does reduce income inequality

2. A policy is regressive if:

lower income households, pay proportionally more more (or benefit less) than higher income households

this redistributes resources and does not decrease relative poverty and increases income inequality.

What type of policies are progressive

1. tax: income tax, VAT and other sales taxes, property and wealth taxes

2. Benefits: means-tested cash benefits, universal cash benefits, tax credits

3. spending: healthcare, education, state pension

4. regulation: minimum wages, rent controls, price caps on essentials

two types of taxes

1. taxes on income (direct taxes): account for the largest part of government tax revenue (57%)

2. taxes on goods and services (indirect taxes): VAT, duties on alcohol, tobacco, fuel

3. various other

4. 27% of tax revenue

types of benefits

1. means-tested benefits: available to households on low income, when their income rises the value of the benefits decline e.g. unemployment benefits, income support and housing benefit

2. means tested and targeted at specific groups: child tax credit, disability living allowance, state pension

3. universal benefits: available to everyone regardless of income, no cash benefits in the UK are universal although child benefit and disability benefit (available up to a high level of income), spending such as healthcare and education are universal.

pros and cons of means tested versus universal benefits

means-tested benefits pros:

• good at targeting low-income households

means-tested benefits cons:

• provide disincentive to work (moral hazard problem)

• might stigmatise recipients

• sometimes people dont take up means-tested benefits

universal benefits pros:

• they dont have the problem of stigmatising recipients

• take up tends to be higher

universal benefits cons:

• not well targeted at low income households

• usually very expensive and have high deadweight costs

expalin how taxes and benefits are redistributive

• they reduce the income of high earners and increase the income of low earners

• peopled and households earn less at some points in time and more at other times

• they also use public services more at some times (education when young, healthcare when old) thus a large part of the effect of taxes and benefits is to redistribute across a persons lifetime

this helps people to smooth consumption over their life time