Question

In: Economics

Consider the impact of economic inequality for politics and society. What are some of the methods...

Consider the impact of economic inequality for politics and society. What are some of the methods used to assess inequality? Prescribe a policy or set of policies that you think could be the most effective at ameliorating inequality, and why.

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Expert Solution

Economic Inequality
Economic inequality can be defined as the unequal distribution of income and opportunity within different groups or individuals of the population. The impact made by the inequality affects the entire society and its functioning. Society may suffer from unemployment, problems in public health, access to education, happiness, level of consumption of social goods and the way they are distributed, welfare problems and political inequalities of difference in accessing the public systems etc. Also, most of the problems arises due to inequality will affect only a group of population and not everyone. That is how it defines as unequal distribution. Economic inequality also pulls the economy back from an efficient rate of growth. With high inequality, the ability of the economy to perform better get reduces. Also, political impacts include the inability of a group of the society to access governmental resources and to have equal ability to be the part of decision making for the public.  
Gini coefficient, The Theil index and Hoover index are some methods to analyze or measure income inequality. Gini coefficient is the most accepted and widely used one to measure income inequality. A numerical measure on income distribution is analyzed and observed how and when it becomes unequal. Measuring the income distribution over a whole society to the ratios measuring 0 -1. Zero measures perfect equality and one measures perfect inequality.
Unequal distribution of income can be tackled by governments spending on social security expenditure, efficient allocation of public goods, transfer payments and through welfare activities. Government charge high tax on higher income groups and redistribute that to the lower ones. Health, public sector services which helps the lower income groups can reduce the level of inequality. Policies should be more of direct benefits rather than indirect utilities from the allocations.   


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