2.3 Methods of promoting equity in income distribution

Progressive taxes benefits

More equal income distribution helps people on low incomes acquire human capital

Progressive taxes act as automatic stabilizers

Progressive taxes negatives

High tax rates reduce incentive to work

Government subsidies for merit goods positives

Merit goods have positive consumption externalities

Government subsidies for merit goods negatives

Opportunity costs of government spending

Negative effects on government budget

Governments providing transfer payments positives

Unemployment benefits act as automatic stabilizers

Governments providing transfer payments negatives

Some may reduce incentive to work

Opportunity costs of government spending

Negative effects of budget

Governments use price controls negatives

Minimum wages lead to unemployment

Price controls lead to allocative inefficiency