5 redistribution of income

Redistribution of income

Redistribution of income

The study of how national income is distributed among different factors of production and different groups in society.

Income inequality

The difference in income that exists between different groups in society, such as the rich, middle class, and poor.

Poverty

Occurs when individuals or households are deprived of material possessions and income, which stops them from having a decent standard of living.

Absolute poverty

Individuals are deprived of resources that are essential eg food, shelter and energy

Relative poverty

Occurs when individuals or households are in lower living standard than the middle class

Causes of Poverty

Lack of educational skills : lack of education and vocational skills leads to unemployment or low wage work which decreases economic opportunities and growth

Economic and social inequality : Discrimination, prejudice and lack of capital prevents groups such as minorities, women, disabled and rural population from upward economic ability. Persistent inequality causes generational poverty which is hard to get out off.

Government corruption : corruption siphens money away from the public services and social programmes meant to help the low class and homeless population.

Debt traps : high interest rates keep poor households stuck in poverty as loan repayments consume the majority of income. This can also occur on a national level for example China provides large loans to African countries for infrastructure projects. When countries struggle to repay debt, China negotiates control over local assets or policy influence. This debt trap diplomacy limits economic and political sovereignty of African nations, while citizens bear the burden through austerity policies and higher taxes to repay Chinese loans.

Why and How to reduce poverty

Why?
Alleviates human suffering : poverty is often associated with high rates of deseases, malnutrition, starvation and death. Reducing poverty improves the general health, wellbeing and quality of life of the population.

Promotes economic growth : reducing poverty enables investment in education and skill development. This expands economic opportunities and drives innovation and growth while creating job opportunities, new markets and demands due to increase in quality of labour and productivity

How?
Invest in education and health : building human capital by investing in quality education and healthcare and make it available to low and middle class in order to increase the quality of labour and productivity

Good governance and reforms : effective policies towards tackling corruption in order to get as much money invested into social services, infrastructure, education and healthcare in order to build up human capital and ensure that the population in need is benefited and treated fairly.

Progressive taxation

system in which the tax rate decreases as the taxable amount increases. Those with higher income pay a higher percentage of their income in tax.

Regressive taxation

tax rate decreases and the amount subject to taxation increases and the burden falls on relatively on those with lower incomes

Benefit payments

helps redistribute income to the poor through the welfare system