Macro Econ Inequality and Poverty

Absolute poverty

household does not have sufficient income to afford basic needs

Relative poverty

Compares the income of households with the median income in a society

Household income

generated from income generated from the payments received per period of time from the use of factors of production (rent, wages, interest and profits)

Household wealth

Value of a household's assets at some point in time minus what they owe

MPI deprivation indicators

Child mortality, sanitation, nutrition, drinking water, years of schooling, electricity, school attendance, housing, cooking fuel, assets

Difficulties in measuring poverty

Defining poverty, having sufficient and irregular household surveys to collect poverty data, sampling: people in acute poverty may be omitted, having limited disaggregation of data, relying on poverty lines (which may underestimate severity of poverty), relying on minimum income standards (which can be misleading)

Causes of inequality and poverty

Inequality of opportunity, different levels of resource ownership, different levels of human capital, discrimination, unequal status and power, government tax and benefits policies, globalization and technological change, market-based supply-side policies

Impact of inequality on economic growth

Low levels of human capital (lower productivity, slower growth), lower savings (lower investments, slower growth), inequality encourages rent-seeking behaviors (diverting resources from productive purposes), lack of access to credit (lower investment, slower growth), inequality creates instability (discouraging investment, limiting growth), high inequality (non-inclusive growth, fragile growth)

Impact of inequality on standards of living and social stability

Higher criminality, damaged trust and social cohesion, increasing support of populist policies, increasing power of the rich, fuelling conflicts and upheavals

Types of direct taxes

Personal income taxes, corporate income taxes, wealth taxes

Types of taxation

progressive, regressive, proportional

Taxation as a tool to reduce inequality and poverty

Progressive income taxes can redistribute income more equally, wealth tax can be used to redistribute wealth more equally, property taxes if increased and made more progressive can improve inequality, less reliance on indirect taxes can promote equity

further policies to reduce poverty, income and wealth inequality

Investment in human capital (reduces inequalities of opportunities), transfer payments, targeted spending on goods and services, universal basic income (UBI)