Question

7. What are some of the normative reasons that a society may want to limit economic inequality and/or reduce poverty rates?

a. Describe policy interventions that governments can undertake to reduce poverty and inequality. Describe the types of tax credits and income support programs that have been introduced in Canada to alleviate poverty. Why might more “conservative” economists oppose such interventions?

b. Piketty recommends, among other things, a progressive global tax on wealth. Why does he suggest that such a tax must be global? How does this relate to the marginal productivity theory of income distribution?

c. What does Piketty predict will happen to the confidence in globalization and free trade if trends in economic inequality are not reversed? Does the election of Donald Trump support Piketty’s predictions?

Answer 1

Poverty is a state where there is a lack of money and scarcity of resources. It is a concept that includes polictical, economical, social elements. Absolute poverty, extreme poverty or destitution is a situation where there is complete lack of necessary and basic personal needs such as clothing, food and shelter. Economic growth is the most powerful element in reducing inequality and poverty also improving the quality of life. Growth helps move out from the zone of poverty. The link between poverty and growth is clear and positive. Economic growth generates job opportunities also demand for labor is stronger leading to decline in the inequality.

a) Some Policy interventions that government can undertake to reduce poverty and inequality are:

Federal assistance lifts millions of people, including children, out of poverty and provides access to affordable health care.

Programs like SNAP (food stamps), the EITC and CTC, and Medicaid support millions of low-income workingfamilies and help promote work.

Researchers have identified long-term payoffs to programs like SNAP, EITC, early childhood education, and Pell Grants.

In 1983, a full-time and minimum wage worker or an employee earned about $6,700 per year and was eligible for maximum EITC of $500, about equal to the employee’s share of payroll taxes.he worker’s earnings equaled about 66 percent of the poverty line for a family of 4 and, once the worker’s payroll taxes and EITC were figured and calculated in, the worker’s income was specifically unchanged at 67 percent.

At present times, a full-time and minimum wage worker or an employee earns only 61 percent of the poverty line for a family of 4. But, after accounting for the family’s earnings, payroll taxes, and both the EITC and CTC, the family’s income rises to 87 percent of the poverty line, a significant increment in that family’s economic lifestyle and well being