Question

Watch the following youtube video posted on the course syllabus entitled “How Tax and Spending Policies Can Reduce Poverty and Inequality” available at the following link https://www.youtube.com/watch?v=78t8GgjTcIA&feature=youtu.be. Then answer the following questions.

1. What are the two economic issues the government fiscal policy addresses in this video? (2 points)

2. Think of yourself as an economist who is given the task of addressing the issue(s) at hand.

a. What alternatives can you use to address the issue? Explain briefly. (4 points)

b. What are the pros and cons of each of them? (4 points)

Answer 1

1. The economic issues are the reduction of poverty and inequality in the economy. The two factors which address this issue with the fiscal policy are the taxes being paid by the people in an economy which create a source of revenue for the government. Second is the spending of the government which it does out of its revenues for social transfers, investment in health and education etc.

2. The task of addressing the issue of reducing poverty and inequality using the taxes and the spending being the tools of fiscal policy by the government is actually the decision made by the government. The tax rates decided by the government will further help by its distributive effects.

3. The alternate which can be used to solve the issue of inequality and poverty are the government programs to increase the employment and the productivity of the workers. For this, the workers could be provided with the financial support for training and apprenticeship programs. Earn-while-you-learn is also an effective program as this would incentivize the people to go for the training.

4. Pros and cons of taxation & spending

a.Pros: Taxation is needed to extract the amount of the government revenue which by charging higher rates to the rich and lower to the poor can eradicate the problem of poverty and inequality. Cons: The negative part of the taxation is the regressiveness. If the taxes will be regressive in nature, they will instead worse the consition of inequality.

b. Pros: Government spending in form of cash transfers and the social programs for the poor will reduce their poverty level along with the reduction in inequality. Cons: Spending the money for the revenue purposes or for the cash transfers will be short-term and the problem will not si=olve over the time. So it will be better for the government to spend this money on the long-term beneficial things such as health and education sector along with providing jobs.