MASTERCLASS

Equity and policies towards income and

wealth redistribution
(A2 Economics)
1. Equity versus efficiency, price stabilisation
2. Means tested benefits, Transfer payments
3. Progressive income taxes, inheritance and capital taxes
4. Negative income tax, poverty trap analysis
5. Gini coefficient and the Lorenz curve
 Efficiency versus equity
Efficiency
refers to how resources can be best used in
society. A market is efficient when resources are
distributed optimally.

Economics Efficiency
= Productive Efficiency
+ Allocative Efficiency
 Efficiency versus equity
Equity
refers to fairness, or
what is considered to
be an acceptable
distribution of income
and wealth in society.
Eg. tax and welfare
 Price stabilisation
very high inflation → impact mostly to low and
fixed incomes due to cost of necessities
becomes expensive
 Means tested benefits and
transfer payments
Transfer payments are welfare payments from
the government.

Aim: to provide a minimum standard of living for

those on low incomes

Example: Health care (BPJS Kesehatan)

Retirement and pension benefits
 Means tested benefits and
transfer payments
Means tested Universal benefits
benefits are given everyone gets the
based on the criteria benefit regardless of
of income and wealth. their income.

Those on low incomes example: public

might be eligible for education
benefits such as
Income Support, for
example.
 Progressive income taxes,
inheritance and capital taxes
A progressive tax has an increase in the average rate
of tax as income increases. As income increases, the
proportion of income taxed increases.
 Progressive income taxes,
inheritance and capital taxes
Inheritance tax a tax
imposed on someone who
inherits property or money.

Inheritance tax redistributes

income so some of the
money goes to the state to
be distributed for the benefit
of all.
 Negative income tax
This is a type of progressive income tax which
means people on incomes below a certain level
receive money instead of paying taxes. This type
of tax has only been in theory so far.

This aims to redistribute income from the richest

to the poorest, thereby reducing income
inequality.
Negative income tax
Poverty trap analysis
Lorenz curve
Lorenz curve
 Gini coefficient
The Gini coefficient gives a numerical value for
inequality and is derived from the
Lorenz curve. It is calculated by the areas:
Gap Minder on Gini Coefficient
Gini coefficient
 CHECK YOUR
UNDERSTANDING
Q1
Q1
Q2
Q2
Q3
Q3
 Daily Reflection
At the end of each lesson, you will need to complete the daily
reflection.

1. What I have learnt?

2. What I need to improve?

3. Questions that I need to ask?