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A2 Economics Equity & EqualityLearning ObjectivesTo understand the concept of equalityTo understand the concept of equity
Last summer in MicroeconomicsDistribution of IncomeDistribution of WealthInequality•Causes•ConsequencesEquity & Learning Objectives To understand the concept of equalityEquality To understand the concept of equity
Equality – the situation where goods and services in a society are distributed equallyThe benefits of equality:•Improves social cohesion – less difference•Improves health – greater access•Can encourage economic growth – less savingIssues created by equality:•Lack of incentive to work harder; what’s the point?•Profit motive drives the economy•International competitiveness: in highly re-distributive economies(high taxes and benefits) may act as an uncompetitive constraintin the economy
EquityEquity – the concept of ‘fairness’http://www.tutor2u.net/economics/content/topics/marketfail/notions_equity.htmThere can be no universal definition of equity:•What some will consider fair reward for work done, others mayconsider unfair•Refers to a “good” distribution of welfare across societyThe significance of equity:•The concept of fairness will be part of the economic policymaking process•Many economic policies will aim to improve equity
Types of EquityEquity applies in the construction of tax systems:Horizontal Equity - people with a similar ability to pay taxesshould pay the same or similar amountsVertical Equity - people with a greater ability to pay taxes shouldpay moreTruly equitable tax systems will deliver horizontal andvertical equity.E.g. income tax has both horizontal and vertical equity.
RedistributionUsing the tax and benefit system to transfer wealth from thewealthy to the poor.•20% standard tax rate•40% higher tax rate•50% tax rate on high income earners – but will end soonImproves equity:•Raises consumption by the poorIssues:•May damage the incentive to work•Deadweight loss caused by inefficiency of taxation
Essay of the weekIn trios, discuss the benefits and constraints of using the tax systemto create a more equitable society.What else could make society more equitable?Essay question:Assess the view that poverty can be eliminated solely throughchanges to the tax and benefit system? (25 marks) (Jan. 2009)Get Jake to lead a discussion on an essay plan!Equity & Learning Objectives To understand the concept of equalityEquality To understand the concept of equity