Table f c e

To a grea er or le er e en all go ernmen ee impro ing eq i , income eq ali and red cing po er a a
poli ical and economic objec i e. Achie ing lo er po er ra e along i h grea er eq i and eq ali can bring
igni can bene o a co n r in erm of economic gro h, impro ing li ing andard , achie ing grea er
ocial abili and deli ering a fairer ocie .

Wha h dk b he e d f hi cha e :

The role of a a ion o impro e eq ali , eq i

and po er
Progre i e, regre i e and propor ional a e
A erage and marginal a ra e
Direc a e and indirec a on eq ali
Calc la ion of o al a and a erage a ra e from
a e of da a (HL onl )
O her policie o impro e eq ali , eq i and
po er incl de in e men in h man capi al,
ran fer pa men , arge ed pending on good and
er ice , ni er al ba ic income, an i-
di crimina ion la and minim m age

Re i i a e ia

The link o he a ached pdf i re i ion ma erial from U 3.4(2) P

, . The re i ion ma erial can be do nloaded
a a den hando .

Uni 3.4(2) Policie o impro e eq ali , eq i and po er

The ai f icie i ee ai ,e i a d ed ce e
To a grea er or le er e en all go ernmen ee impro ing eq i , income eq ali and red cing po er a a
poli ical and economic objec i e. Achie ing lo er po er ra e along i h grea er eq i and eq ali can bring
igni can bene o a co n r in erm of economic gro h, impro ing li ing andard , achie ing grea er
ocial abili and deli ering a fairer ocie .

The e are he polic op ion go ernmen ha e o increa e eq ali and eq i and red ce po er .

Ta a i

Direc and indirec a can be ed o redi rib e income b a ing people on higher income more han ho e on
lo er income and hen ing he a re en e o pa for p blic er ice and elfare pa men ha ppor
lo er-income ho ehold .

When looking a differen a em i i impor an o look a he o differen a of mea ring he a ra e:

A e age a e f a
A erage ra e of a i he percen age of a paid on an indi id al o al income and i calc la ed a :

o al a / o al income 100 = a erage ra e of a

If a per on income i $50,000 and he pa $10,000 in a hen heir a erage ra e of a o ld be:

$10,000 / $50,000 = 20%

Ma ginal a e f a

Marginal ra e of a i he percen age of a paid on each e ra $ of income omeone earn and i calc la ed a :

change in o al a /change in income 100 = marginal ra e of a

If a per on income ri e from $50,000 o $60,000 and heir o al a paid increa e b $5,000 hen he marginal
ra e of a o ld be:

$5,000 / $10,000 100 = 50%

P g e i e a

In a progre i e em, he ra e of a ri e a an indi id al income ri e hich mean heir marginal ra e of

a increa e i h income. The able belo e o ho a progre i e a em ork in a co n r . One of he
aim of a progre i e a i o achie e a more eq i able di rib ion of income b a ing people on higher
income a a higher ra e han ho e on lo er income . Indi id al A, B and C earn differen le el of income.
The progre i e a em ho n in he able e o ho he ra e of a increa e a income increa e . Each
indi id al pa ero a on heir r $8,000 of income, 20 per cen on he ne $32,000, 40 per cen on he ne
$40,000 and 50 per cen on an income abo e $80,000. The income le el here he ra e of a change are
called a hre hold . The rela ion hip be een o al a paid and ho ehold income i ho n in diagram 3.30.

Corpora ion a on compan pro i of en progre i e i h a higher ra e charged o more pro able b ine e.
Some poli ician and economi ha e ppor ed he e of a progre i e eal h a on he al e of a e a
ho ehold' o n ra her han on heir income. Man high-income indi id al can e a a oidance cheme o
red ce heir income a b rden, b he o ld nd i more dif c l o a oid a one-off eal h a . A eal h a
of 10 per cen on a ho ehold i h a ne a e al e of $10 million o ld mean hem pa ing $1 million in a .

Reg e i e a
A regre i e a i here he a erage ra e of a fall a an indi id al income ri e . Thi applie o indirec a
here people on lo er income pend a higher propor ion of heir income on good here he ha e o pa
indirec a compared o people on higher income . The able belo ill ra e he i a ion of hree indi id al
pa ing indirec a . I i a med ha he onl indirec a paid b each indi id al i VAT e a 20 per cen .

The amo n of VAT paid b , for e ample, indi id al A calc la ed a :

Spending b indi id al A on VAT a ed good i $14,000

20% of he $14,000 i paid in VAT ($14,000 / 1.2 = $11,667) hich mean $11,667 indi id al A'
pending i a ed
$14,000 - $11,667 = $2333 i he a paid b indi id al A
$2,333 / $15,000 100 = 15.56% i indi id al A' a erage ra e of a .

Diagram 3.30 ho he
rela ion hip be een he o al a
paid b an indi id al and he
regre i e a he pa . Regre i e
a e are een o do li le o correc
ineq ali ie beca e he a erage
ra e of a for an indi id al fall a
heir income increa e . The a
collec ed can, ho e er, be ed o
pend on p blic er ice ha do
bene poorer people in ocie .

P i nal a ( a a )

A propor ional a i a direc a em

here he a erage ra e of a remain
con an a income increa e . In he e ample
abo e, he indi id al on $15,000, $60,000
and $100,000 o ld all pa he ame ra e of
income a , for e ample, 20 per cen . E onia,
for e ample, e a propor ional a em
i h a ra e of 20 per cen . The rela ion hip
be een progre i e, regre i e and
propor ional a e and income i ho n in
diagram 3.30. Similar o regre i e a e , he
propor ional a doe li le o correc
ineq ali ie , b again he a re en e can be
ed o ppor lo -income ho ehold .

High ra e of a on high-income gro p can ha e a nega i e impac on hi gro p incen i e o ork.

Thi can be impor an for en reprene r ho are cr cial for ar ing ne b ine e hich emplo people
on lo er income .
If a increa e are concen ra ed on indirec a hen hi ha a er nega i e effec on poorer gro p in
ocie beca e he pa a higher propor ion of heir income on a e like VAT, d ie on alcohol,
cigare e and pe rol.
Rai ing marginal a ra e oo high can lead o a red c ion in a re en e beca e richer people a oid high
a e b lea ing he co n r or b ing a a oidance cheme . Thi lea e le mone for he
 go ernmen o pend on p blic er ice o bene poorer gro p in ocie .
Rai ing indirec a p he p he co of prod cing good hich can lead o higher price and hi ha a
nega i e impac on lo -income ho ehold .
If a co n r ha rela i el high a ra e compared o i in erna ional compe i or , i ma r ggle o
compe e beca e dome ic b ine rm ill ha e higher co and foreign direc in e men i le likel
o come o co n rie i h high a ra e . Thi can nega i el impac he emplo men pro pec of lo -
income ho ehold .

I -T S

S eden ha one of he highe a b rden in he orld. I

ci i en pa on a erage 48.2 per cen of heir income in
a e . I ha a progre i e a em i h income a
ar ing a 29 per cen b ri ing o be een 49 and 60 per
cen on income o er $32,000 hro gh a combina ion of
local and na ional a e . S r e gge mo S ede are
happ pa ing high a e beca e of he q ali of p blic
er ice he recei e, along i h a en e of fairne in he
a differen ho ehold con rib e o ocie .

A one S ede in he r e aid, 'I am er happ o pa

I i al o good o kno o r a
chool and ho pi al .
high a e beca e e er one kno he are ge ing al e
for he mone from he go ernmen er ice he recei e. I
am e peciall plea ed i h he chool m da gh er a end.
em mean he riche people make he bigge con rib ion o pa ing for o r

Q e i n

.D . 2

.T S .U
. 4

.U :

I A $20,000 $18,000 AT
I B $90,000 $70,000 AT
C A B. 4

.O AT . 2

In e iga i n

R
.

O he icie i ee ai ,e i a d ed ce e

An al erna i e go ernmen polic approach o eq i , eq ali and po er i cen red on he pro i ion of p blic
er ice , la and reg la ion.

Go ernmen policie ha arge he poore people in he co n r are een a impor an in crea ing he
oppor ni for indi id al o acce he pe of killed, high pa ing job ha ake people o of po er .
Ed ca ion and raining polic can ake he follo ing form :

Free acce o primar and econdar ed ca ion for all children. B making chool a endance a legal
req iremen he go ernmen rie o make re all children bene from a chool ed ca ion.
Crea ing ppor r c re for lo -income familie hen heir children are in chool ch a li erac and
n merac cheme .
Wide pro i ion and f nding of higher ed ca ion for all lo -income gro p o enable e er one o ha e he
oppor ni o gain he q ali ca ion needed for he mo killed ork.
S a e f nding and pro i ion of emplo men raining programme o ppor lo -income gro p en ering
he labo r force and impro ing heir kill hen he are in ork.

Go ernmen e ide heal hcare pro i ion o e er one in he co n r a a a of ppor ing he poore in
ocie and al o a a a of crea ing economic oppor ni ie . People of en ge ck in po er in co n rie ha
do no ha e idel a ailable free heal hcare. The co of pa ing for heal hcare i of en e pen i e and poorer
people pend a high propor ion of heir income on pa ing for doc or , ho pi al fee and dr g e pen e . The e
e pen e can lea e lo -income indi id al i h li le mone o pa for o her good and er ice . In addi ion,
lo -income ho ehold ma ha e lo le el of prod c i i a ork beca e of heir heal h or he canno go o
ork beca e of poor heal h. Thi o ld al o appl o famil member ho canno ork beca e he are
looking af er dependen .

I -T US

Heal hcare in America i e pen i e. If o do no recei e an ppor from o r emplo er, he a erage
heal hcare in rance premi m o co er an indi id al i o er $400 per mon h i h he a erage famil premi m
coming in a aro nd $900 per mon h. The a erage plan i no going o co er o for e er hing. For e ample, an
a erage in rance polic doe no co er he co of f ll cancer care. Aro nd 44 million people in he US ha e no
heal h in rance co er, and ano her 38 million ha e in f cien heal h in rance.

Thi mean aro nd a q ar er of American ho ehold do no ha e acce o heal hcare co erage. The la US
go ernmen led b Pre iden Barack Obama ried o change all hi b de eloping a change o he US heal hcare
 em here all American ci i en o ld ha e
adeq a e heal h in rance. The Affordable Care Ac or
Obamacare mean ha lo -income ho ehold o ld
ha e heir heal hcare co co ered b he go ernmen
o higher-income people o ld in effec be pa ing for
lo -income ho ehold .

Q e i n

.E

US. 4

.E
US . 10

In e iga i n

I US , .

Ta re en e collec ed b he go ernmen can be redi rib ed o lo -income ho ehold hro gh he bene

em. Unemplo men , ho ing, and di abili bene can all be arge ed a lo -income gro p in ocie .

In e men pending b he go ernmen on infra r c re can be an effec i e a of crea ing oppor ni ie for
people in poorer ho ehold o impro e heir emplo men pro pec and income . Be er connec i i hro gh
p blic ran por mean people can ha e grea er acce o emplo men and ed ca ion. In e men b he
go ernmen in high- peed broadband i al o a a ho ehold on lo er income can gain acce he
emplo men oppor ni ie and ed ca ion o impro e heir f re income and red ce ineq ali .

A -

To impro e he income, emplo men and ed ca ional pro pec of cer ain gro p in ocie go ernmen can p
in place la and reg la ion ha pre en emplo er , chool and ni er i ie from di crimina ing ba ed on
gender, e hnici , religion, e al orien a ion and age.

Uni er al Ba ic Income i here a go ernmen make an ncondi ional, reg lar pa men o e er one in a
co n r . Thi i a polic go ernmen are in e iga ing, b no go ernmen ha e f ll p a ni er al ba ic
income in o place. Man economi are concerned ha f re ad ance in echnolog hro gh ar i cial
in elligence ma lead o ch igni can job lo e ha a ni er al ba ic income ill be needed o ppor he
pop la ion.

Go ernmen can p in place peci c la and reg la ion ha op emplo er from e ploi ing lo -income
orker . The e reg la ion incl de:
 Minim m age o make re all orker are paid a fair age for
he ork he do.
Red ndanc and di mi al reg la ion mean orker canno be
made red ndan or di mi ed b heir emplo er i ho a fair
proced re.
Pro ec ion and ppor of rade nion ho ac in he in ere of heir
member .
The righ o paid holida , ickne bene and lea e for ma erni
and pa erni .
Reg la ion o en re he afe and ec ri of orking condi ion
for all emplo ee a heir place of ork.

Go ernmen pending on policie ch a infra r c re, heal h and ed ca ion need f nd o pa for hem.
Thi can be paid for o of a re en e b rai ing a a ion or b c ing go ernmen e pendi re in o her
area hich repre en an oppor ni co . Al erna i el , he f nd can come from borro ing hich ha
an in ere co and add o he na ional deb .
Cri ic of go ernmen pending a ha re o rce are alloca ed and ed inef cien l . Thi i beca e
go ernmen migh pend mone on poli icall mo i a ed projec and go ernmen en erpri e do no ha e
he pre re of compe i ion or pro o make hem ef cien . People of en cri ici e go ernmen raining
cheme for hi rea on.
Go ernmen are ch large organi a ion ha he r ggle o opera e effec i el a a micro le el beca e
of di economie of cale. Go ernmen b rea crac can re l in deci ion in heal hcare, ed ca ion and
infra r c re being lo and ineffec i e.
Increa ed orkplace reg la ion o pro ec lo -income orker can increa e b ine co , increa e price
and red ce an econom in erna ional compe i i ene .

I -T R B

When he R ian go ernmen pen $1B o pa

for a bridge ha connec ed he 5,000 inhabi an
of R k I land o he ci of Vladi o ock
people ondered he her hi a good al e for
mone . A ell a being an a emp o impro e
infra r c re i a al o par of federal
go ernmen prepara ion for he A ia-Paci c
Economic Co-opera ion mmi 2012. The
mmi la ed o da .

Q e i n

U - ,
. 15

An er ho ld incl de:

De ni ion of go ernmen e pendi re and eq i .

Diagram o ho an impro emen in eq i .
 E plana ion ha go ernmen e pendi re
can impro e eq i in ocie hro gh
elfare pa men o lo -income
ho ehold ; pro i ion of meri good ch
a heal h and ed ca ion; and in e men in
high-q ali infra r c re.
U e real- orld e ample a US go ernmen
e pendi re on heal hcare.

E al a ion/ n he i migh incl de

co erage of he problem of go ernmen
e pendi re in he econom in erm of
ef cienc and poli ical deci ion making a
ell a he oppor ni co of go ernmen
pending. The an er migh al o incl de a
di c ion of a progre i e a em a an al erna i e polic .

In e iga i n

F -
.

Thinking abo a ke concep - Choice

There i a poli ical deba e abo he e en o hich go ernmen ho ld ppor people on lo income ing
he a e of people on higher income . One ie i ha 'hard orking indi id al ho ar b ine e and in e
heir ed ca ion ho ld gi e onl limi ed ppor o indi id al ho ha e no made he be of heir o n li e '.
An al erna i e per pec i e i man people hro gh no fa l of heir o n ge in ck on elfare pa men beca e
of nemplo men and lo paid ork. Socie ha a choice: doe i op for a model of limi ed go ernmen free-
marke indi id ali m or doe i choo e a more ociali model.

No e o r elf

U ing he follo ing a informa ion for Co n r X, hich op ion i he a erage income of Co n r X?

A erage a ra e 15%

Ta paid $3,600

A. 240,000

B. 24,000

C. 41,400
D. 54,000

$3,600 / 0.15 = $24,000

Chec
2

Which eq a ion i ed o calc la e he marginal ra e of a ?

A. change in o al income / change in o al a 100

B. % change in a / % change in o al income

C. o al a / o al income

D. change in o al a / change in income 100

Chec
3

Which of he follo ing be de cribe a progre i e a em.

A. A a em here he ra e of a ri e a an indi id al income ri e

B. A a em here he ra e of a fall a an indi id al income ri e

C. A a em here he ra e of a a con an a an indi id al income ri e

D. A a em here he ra e of a ri e and hen fall a an indi id al income ri e

Chec
4

U ing he follo ing da a i for indi id al X, hich op ion i he a erage ra e of a he pa ?

0 $10,000 0%

$10,001 - $30,000 15%

$30,001 - $60,000 30%

Indi id al A income $52,000

A. 15.00%

B. 30.00%

C. 18.46%

D. 21.35%

(20,000 0.15) + (22,000 0.30) / 52,000 = 18.46%

Chec
5
Which of he follo ing a em i ill ra ed b he red line on he graph?

A. Progre i e

B. Regre i e

C. Ad alorem

D. Propor ional

The red line i regre i e beca e a income ri e ha ra e of a fall .

Chec
6

Which of he follo ing i lea likel o be a problem ari ing from go ernmen pending o red ce income
ineq ali ?

A. The oppor ni co of pending on o her a pec of go ernmen polic

B. A need o increa e a a ion

C. An increa e in he b dge de ci

D. A fall in he Gini coef cien

If income ineq ali i red ced b go ernmen pending hen he Gini coef cien i mo likel o fall hich i
he aim of he polic .

Chec
7

Which of he follo ing policie i lea likel o red ce income ineq ali and po er ?

A. Go ernmen -f nded heal hcare

B. Red ce he po er of rade nion

C. A ni er al ba ic income cheme

D. Rai ing he chool lea ing age o 18

Red cing he po er of rade nion lea e orker le pro ec ed from emplo ee and he are le likel o be
rea ed eq i abl .

Chec
8

Which of he follo ing policie i mo likel o increa e eq i in a co n r ?

A. Red ce direc a a ion

B. Increa ed go ernmen pending on ed ca ion

C. Increa e indirec a a ion

D. Red ce he minim m age

Increa ing go ernmen pending on ed ca ion gi e lo er-income ho ehold grea er oppor ni ie in he labo r
marke .

Chec
To al Score: Chec