Policies to Redistribute Income and Wealth with Evaluation

Policies to Redistribute Income and Wealth with Evaluation



hi everybody government intervention in labor markets is often based on the grounds of equity ie the free labor markets can end in unequal distributions of income and wealth and in poverty so in government's intervening labor markets they do so to redistribute income and wealth and to reduce poverty in this video we are going to look at all the policies available to governments to help redistribute income and wealth but also looking at the counter arguments the arguments against some of these policies before finishing with key evaluation points to this big debate don't forget that income and wealth are mutually reinforcing concepts so with high income you expect high wealth that to come together with high wealth you expect high income the to come together as covered in my previous video so all of these policies can be argued to help redistribute income and wealth so key thing to take away right now is that govern intervention here is a normative consideration based on equity based on fairness or unfair I comes that free labor markets can bring so let's start by looking at taxation policies to redistribute income and wealth to help reduce poverty there are two options available to governments one option is to make progressive income tax systems more progressive either by taxing the rich more heavily ie by raising tax rates on those who are earning in the highest income tax brackets or by raising the income tax free allowance of the lower end by raising the tax-free allowance it's the poor that are going to benefit the most because they're able now to keep most of the income that they're earning or more of the income that they're earning but by raising tax rates on the rich the idea is the gun will collect more income tax revenue from the rich and that revenue can be used to redistribute and provide to the poor either in terms of higher benefits or by spending on key areas of the economy like education services health services which will benefit the poor significantly at the same time the government can actually reduce regressive taxes regressive taxes we know take up a greater proportion of the income of the poor than they do of the rich I they burn in the poor more than they do than the rich so examples of regressive factors of things like cigarette duty alcohol duty fuel duty but maybe most significantly v80 very regressive so by reducing these taxes we are reducing the burden on the poor we are increasing the amount of income that the poor can keep and then spent to increase their living standards but let's not look at some of the issues with these by making progressive income tax systems more progressive by specifically raising tax rates on the rich laughs I would argue there you're distorting incentives and the overall tax take for the government might be less the amount of tax revenue collected might be less why because if you're rich the incentive to earn more income reduces the incentive to become more productive to take on more risks to become entrepreneurial to make more money disappears knowing that most of that income is going to be taxed away so the overall impact will actually be less rapid revenue collected by the government laugh argues that if the government tax is too much of the high-end this is likely to be the result resulting in lower tax revenue collection for the government watch my video on the laughs occur to really understand that in more detail the link is just above me the argument against reducing regressive taxes is the hit to government finances especially when now in major developed economies regressive taxes of big earners for the government and if the government takes a big fiscal hit who knows what like what that might mean for the future it might mean austerity policies going forward to help control government budgets other policies that can be used involve increasing benefits or transfer payments transfer payments or payments made by the government to economic agents where there is no exchange of goods and services at all so raising benefits of course can help to reduce your income you're helping the poor significantly benefits that could be increased it could be means-tested benefits or universal benefits mean tested benefits or benefits simply to those who desperately need it only to those people and they get taken away when living conditions improve or incomes increase beyond a certain threshold so means-tested benefits include things like the working tax credit in the UK but also unemployment maybe the most famous example whereas Universal benefits don't get taken away when conditions change or improve and they're available to all regardless of whether they're in desperate need of them or not so a good example of a universal benefit its trial support for example so by increasing benefits is clear how we can reduce you income and wealth we increase and the incomes of the poor especially if we consider mean tested benefits but what are some of the problems of this well by increasing mean tested benefits the risk of a poverty track is quite significant here if you're on means-tested benefits and you know they're going to be taken away when your income reaches a certain level your incentive is maybe then to stay on those benefits and not to find work that is not a good thing at all that will just lead to an even greater strain on public finances and not the kind of incentives you want to be promoting in society even though you might be doing it for the right reasons as the government the end outcomes might be quite inefficient and generally the impact on government finances is very strong to Universal benefits for example the more you increase so you implement Universal benefits than more that the government is having to spend the greater the fiscal impact is of that the government may simply not be able to afford it in the future there might be significant impacts of that might be significant issues with that in terms of austerity policy minimum maximum wages could be used by the government to directly impact labor markets and change wages there so minimum wages above competitive outcomes why to help those on lower wages to help those who are getting wages which does not give them a decent standard of living minimum wages can artificially boost that wage and maybe access a greater living standard for those workers who are pay very lowly we've considered minimum wages in a previous video watch that video for more till understanding often but maximum wages to control how much wages can increase beyond a certain level especially capping things like bonuses for example well that's becoming a big culture in the UK economy right now maximum wages control how much wages can go beyond a certain level they are a price ceiling if you think about it they can't go beyond a certain level but to question and to counter some of these policies we can again question incentives if there are maximum wages what is incentive to be entrepreneurial to be productive if your wage can't increase beyond a certain level and for minimum wages we can look at the employment side effects of it as considered in my previous video and especially the impact on the youth and how unemployment can target the youth when your impact and impose a minimum wage legislations can be used by governments so let's look at some examples anti-discrimination laws can help reduce wage differentials hiring and firing legislation making it stricter for example and harder for firms to fire workers to make workers redundant can again help reduce the unequal nature of income and wealth distribution by imposing the minimum wages as we said by allowing more maternity and paternity leave again making outcomes fairer in labour markets but the problem in legislations is how costly they can be for businesses the enforcement of them needs to be strong if they're actually going to have an impact but the significant risk of government failure how businesses may shut down because of how costly these legislations might be they may relocate to other countries by legislations aren't straight these are all unintended consequences of government and policy here of government intervention and that can lead to a government failure while the cost of intervention outweigh the benefits of intervention the government may take a different view and try and help to reduce poverty or redistribute income it well by looking at supply-side policies are classic supply-side policies like government spending on education and training life government spending on health care tackling issues at the root of the problem a lack of productivity so both of these policies help to improve productivity spending on education training by increasing skills and that increase in skill translate to hire MRP high productivity and therefore higher incomes and higher wages by spending more in health care we again help to keep productivity high in the economy if somebody falls sick then they can get treated easy they can keep their productivity high they take less number of days out of work which accused productivity high keeps their earning potential high so the idea behind this is you tackle the root causes of poverty or the root cause of unequal distributions of income and wealth and in the long term you help to reduce that gap and improve situations however these policies are very very expensive and maybe cannot necessarily be afforded by governments who are under very very tough budgetary control at the moment enacting austerity policies at the moment and also they take a long time to take an effect so if you want a quick improvement in the distribution of income and wealth in reductions in poverty these policies are not going to give it to you there are long-term policies let's now look at some key evaluation points that will feature in essays where you want to talk about redistributing income and wealth well two points here we've focused on throughout our discussion so far the incentives impact and the state of government finances you've always got to worry about the perverse incentives that some of these policies may promote and a lot of these policies are costly whether the government's can actually afford them given the state of government finances you need to consider so when these two points up is very good evaluation this is very strong considering equity against efficiency it's hard to argue against any of these policies on the equity front I on the fairness front these are all very fair policies you might argue but are they all efficient maybe not consider the distortion of incentives of a lot of these policies very inefficient in terms of what the end outcomes might be but some like minimum and maximum wages distorting efficient labor market outcomes will lead to significant inefficiency depending on the level of the caps depending on the level of the minimum wage for example so weighing up those arguments could be very strong evaluation as I mentioned at the start of the video government intervention in labor market isn't normative consideration is that really the best reason for intervening in the market is that going to lead to the best outcomes you can argue not if anytime there is intervention based on normative judgments the risk of inefficiency is even greater you might you know have the intention of making things better but actually you might be making things worse so if the reason for intervention is purely normative the end outcomes may be very much government failure so we can link those two points together normative is not really an economists the best economists argument for intervening in markets and we need to consider whether the government needs to intervene in these markets is the level of inequality is the gap between the rich and the poor so big that a requires intervention or risk the level of inequality out there in society okay acceptable just part of what capitalist economies will bring you if that's your conclusion that maybe the government doesn't need to intervene and risk the potential of government failure risk making things worse than what they are right now so weighing up your government failure arguments is very very strong arguments to your normative considerations to whether inequality is bad enough so bad that it requires intervention to inefficiency argument is a strong way of evaluating throughout that's it guys very very hearty content here questions that come up very very regularly in your exams hopefully now you can smash it and you understand it thank you so much for watching now make sure you revise your notes in detail I'll see you all in the next video

20 thoughts on “Policies to Redistribute Income and Wealth with Evaluation

  1. When he went in for that.."laffer would argue" god that was a moment, you're gonna kill us dal.

  2. no wonder avg person doesn't want to be free and independent and shouldn't be allowed to vote
    That is why American independence only landowners were allowed to vote to prevent income redistribution i. e legal robbery

  3. Great video, could you mention Universal Basic Income as a policy to reduce inequality. If so, what would be the pros and cons ?

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