Unit 3.4 - Economics of Inequality and Poverty

All 120 cards in this deck

Every term and definition, free to read. Hit study above to practice them as flashcards.

taxation policy

Government strategies regarding tax collection and distribution aimed at promoting equity. Effective taxation policies can help address income inequalities by redistributing wealth and funding public services.

wealth distribution

The way ownership of a country's wealth is spread across its people. An unequal distribution arises from the natural inequality of ownership of the factors of production in a free market economy, and is judged alongside income when governments assess equity.

Persistent poverty

A situation where a significant portion of the population is unable to meet basic needs, leading to limited productivity and long-term economic growth. This can result in increased government spending on benefits and services, creating opportunity costs for other areas of expenditure.

A concept represented by a 45-degree line indicating equal distribution of income or wealth.HL

perfect equality

A situation where one individual receives all national income, resulting in a maximum Gini coefficient.HL

total inequality

A statistical measure that indicates equality or inequality within a distribution, where 0 signifies complete equality and 1 indicates total disparity.HL

Value of the Gini coefficient

The method used to derive a numerical value representing income inequality, based on the area under a specific curve compared to a line of equality.HL

Gini coefficient calculation

The total percentage of income or wealth represented by a specific segment of the population.HL

cumulative share

State the formula: Gini coefficientHL

Gini coefficient = A / (A + B) The Gini coefficient equals the area between the line of perfect equality and the Lorenz curve (A) divided by the total area under the line of perfect equality (A + B).

area under the Lorenz curveHL

The area that represents the distribution of income or wealth in an economy, used to calculate the Gini coefficient. It compares the actual income distribution to the perfect equality line, helping to quantify levels of inequality.

degree of inequalityHL

A measure of the extent of income or wealth disparity within a population, typically represented by the Gini coefficient. A higher degree indicates greater inequality, which can lead to various negative social and economic consequences.

line of perfect equalityHL

A theoretical line representing complete income equality, where every individual has the same income. It serves as a benchmark for measuring income inequality, with the Gini coefficient indicating the deviation from this ideal.

A benchmark that identifies the portion of a population earning less than a specified percentage of the country's median income.

Relative poverty line

A direct levy assessed on the total value of owned assets.

Wealth tax

A direct tax levied on the profits generated by businesses in the private sector.

Corporate income tax

A lack of access to employment and consumption options that leads to economic deprivation for some individuals and societies.

Inequality of opportunity

A measure of well-being reflecting personal wealth and access to goods and services.

The standard of living in an economy

A multidimensional process of greater interaction and integration of goods, services, cultures, and more worldwide.

globalization

A tax charged at a uniform rate regardless of income — a sales tax, for instance — so it takes a larger share of a low earner's income than of a high earner's.

Regressive tax

A taxation structure where individuals pay a consistent percentage rate, independent of their financial status.

Proportional tax

Any form of social exclusion, where communities do not accept or respect groups of people based on various differences.

discrimination

Financial gains that businesses in the private sector achieve within a fiscal year.

Corporate income

The accumulation of skills, knowledge, and experiences possessed by individuals or the workforce of a country.

human capital

The amount of income workers can earn before being taxed.

tax threshold

The percentage of tax applied to the last dollar earned by an individual.

marginal tax rate (MTR)

The portion of earnings subject to taxation after allowances have been applied.

Taxable income

The proportion of income paid as tax, calculated by total tax divided by total income.

Average rate of tax

The total tax paid expressed as a proportion of total income earned.

average tax rate (ATR)

State the formula: MTR

MTR = ΔT ÷ ΔY Marginal tax rate equals the change in tax paid divided by the change in gross income.

GST

A specific form of indirect tax levied on the supply of goods and services, charged at a fixed percentage rate regardless of income. It is similar to VAT and serves as a major revenue source for governments.

Global Gender Gap Index (GGGI)

A tool used to measure gender-based disparities across countries, with values ranging from 0 (high gender gap) to 1 (no gender gap). It assesses economic participation, educational attainment, health, and political empowerment, highlighting the economic costs of gender discrimination.

VAT

A type of indirect tax applied to goods and services at each stage of production or distribution, where the final consumer ultimately pays the tax. It is designed to generate revenue and can vary significantly between countries.

corporation tax

A direct tax imposed on the profits of firms operating in the private sector, ensuring that businesses contribute to the community through taxation. It is a key aspect of the tax system that can influence income redistribution.

goods and services tax (GST)

A consumption tax applied uniformly across all income levels, where the same percentage rate is charged regardless of the taxpayer's income, wealth, or profits. Examples include sales taxes like VAT and GST, which can vary by country.

government tax policies

Policies set by the government regarding taxation, which can have significant impacts on income distribution and social equity. Effective tax policies aim to address inequalities by redistributing wealth and providing funding for public services that support disadvantaged groups.

gross income

The total income earned by an individual before any taxes or deductions are taken out, which is crucial for determining tax liabilities.

human development indicators

Metrics used to assess the overall well-being and quality of life in a country, which include income, education, and health. These indicators provide a broader perspective on poverty beyond just monetary measures, highlighting the multidimensional nature of poverty.

income per capita

A measure of average income earned per person in a given area, which correlates with higher human development indicators, such as life expectancy and access to services. However, it does not guarantee that all individuals escape poverty, as inequalities can persist even in high-income countries.

income tax

A direct tax on earnings that aims to redistribute income and reduce economic inequality, with varying rates affecting the wealthy and less affluent differently.

median income

The middle income level in a population, which is used to determine relative poverty by comparing individuals' earnings to this benchmark. It helps to identify those whose income falls below a certain percentage of the median, indicating potential economic hardship.

parallel markets

Markets that operate outside of official regulations, often emerging due to high taxes or strict regulations. They can lead to tax evasion and unreported incomes, impacting national income measurements.

proportional tax (flat rate tax)

A tax system where individuals pay the same percentage of their income regardless of how much they earn. This contrasts with progressive taxes, where the tax rate increases with income, and can affect income distribution and economic equity.

savings ratio

The proportion of income that households save rather than spend, which can influence economic growth. A higher savings ratio can lead to increased investments and long-term economic development, while income inequality may negatively affect this ratio.

social stability

The condition in which a society functions harmoniously, often correlated with lower income inequality, leading to trust among citizens and a better quality of life.

tax allowance

The amount of income an individual can earn before being liable for tax, designed to protect low-income earners from taxation. It is a key feature of progressive tax systems aimed at reducing inequalities.

tax avoidance

The legal practice of arranging one's affairs to minimise the tax owed, using allowances and loopholes rather than breaking the law. High direct taxes encourage it — and, past it, illegal tax evasion through unreported income.

tax bands (tax brackets)

Ranges of income that determine the rate of tax owed, where higher income levels are taxed at higher rates. This system aims to prevent disincentives for work while ensuring fair taxation based on income levels.

tax brackets

The ranges of income that are taxed at different rates, which can create disincentives for individuals to earn more if the thresholds are set too low.

tax burden

The financial load imposed on individuals or businesses by taxes, which can disproportionately affect low-income earners, especially with indirect taxes on demerit goods.

tax evasion

The illegal act of not reporting income or underreporting earnings to avoid paying taxes, often leading to corruption and a misrepresentation of a country's national income.

tax threshold (tax allowance)

The amount of income that individuals can earn before they are required to pay taxes. This system helps prevent taxing low-income earners, allowing them to use their income to meet basic needs while promoting fairness in the tax system.

technological change

The advancements in technology that can lead to economic growth but may also result in job losses and increased inequality, as seen during the Industrial Revolution.

value added tax (VAT)

A consumption tax levied on the value added to goods and services at each stage of production or distribution. It is charged at a fixed percentage rate and is commonly used in many countries, impacting the final price consumers pay.

An imbalance in how the accumulated assets of a country are spread across its population.

unequal distribution of wealth

The condition characterized by the uneven allocation of income and/or wealth among individuals or groups within an economy.

economic inequality

The situation where a small number of individuals receive a disproportionately large share of total income in a society.

unequal distribution of income

assets

Items of value owned by individuals or entities, including land, buildings, and financial holdings. The accumulation of assets contributes to wealth and can generate income, impacting economic inequality.

debt

Money that is owed by individuals or households, which can reduce their net wealth and income due to interest payments. High levels of debt among low-income households can exacerbate economic inequality.

natural resources

Resources such as oil, minerals, or fertile land that some countries possess, which can be traded to generate wealth and enhance economic prosperity. Countries rich in natural resources often enjoy high net wealth per person, exemplified by nations like Qatar and Kuwait.

net wealth

The total value of a household's assets minus its liabilities, such as debts. High net wealth indicates financial stability, while negative net wealth can lead to economic challenges for low-income households.

political stability

The condition in which a country experiences low levels of political unrest and conflict, which is crucial for fostering economic prosperity. Political instability can severely limit domestic economic activity and international trade, hindering wealth accumulation.

purchasing power parity

An economic theory used to compare the relative value of currencies and the cost of living between countries. It helps illustrate income inequalities by showing how much individuals can actually buy with their income in different economies.

wealth gap

The disparity in wealth distribution within a country, where a small portion of the population holds a large share of total wealth. This imbalance can lead to significant economic inequalities and affects overall economic health.

Parity

A situation where income is equal among individuals, meaning everyone receives the same earnings, thus eliminating income inequalities. This differs from equity, which allows for justified inequalities based on qualifications and experience.

economic incentives

Factors that motivate individuals to engage in certain economic activities, such as studying or working harder, often influenced by income inequalities. These incentives are essential for driving productivity and economic growth.

income gap

The difference in income levels between different groups within an economy, often highlighting disparities between the rich and the poor. This gap illustrates the extent of income inequality and the challenges in achieving economic fairness.

wage differentials

The differences in wages earned by individuals based on factors such as education, skill level, and experience. These disparities can lead to increased income inequalities, particularly highlighted by globalization and technological changes that favor skilled over unskilled labor.

A graphical representation that illustrates the level of income inequality in a nation.

Lorenz curve

A guaranteed minimum income level provided by the government to every individual in the country.

universal basic income (UBI)

A statistical measure used to illustrate the distribution of income among a nation's population.

Gini coefficient

A system where the tax rate increases as the individual's earnings rise, resulting in higher contributions from wealthier individuals.

Progressive taxation

A tax system that charges a fixed percentage, regardless of income level.

Proportional taxation

A tax system where lower-income individuals pay a larger percentage of their income than higher earners.

Regressive taxation

The lowest rate of pay mandated by the government.

minimum wage

Customs duties

Taxes imposed on imported products, classified as indirect taxes. They serve to regulate trade and generate revenue, impacting the cost of foreign goods in the domestic market.

Earned Income Tax Credit (EITC)

A tax credit program designed to provide financial relief to low to moderate-income working families, especially those with children. The Earned Income Tax Credit (EITC) reduces tax liabilities and can result in refunds, thereby increasing household income and helping to alleviate poverty.

conditional cash transfers (CCTs)

Financial aid provided to low-income families that requires them to fulfill specific conditions, such as ensuring children attend school or receive vaccinations. Conditional cash transfers (CCTs) aim to encourage behaviors that improve health and education outcomes, thus helping to break the cycle of poverty.

excise duties

Specific indirect taxes imposed on certain goods, particularly demerit goods, which can help regulate consumption and generate revenue.

expenditure tax

A type of indirect tax imposed on consumption rather than income, which can help redistribute wealth as wealthier individuals tend to spend more.

stamp duty

An indirect tax paid on the sale of property, which is often progressive, meaning that higher-value transactions incur higher tax rates.

A composite measure that assesses various deficiencies in individuals and households based on health, education, and living standards.

Multidimensional Poverty Index (MPI)

A cycle of deprivation that perpetuates poverty across generations.

Poverty trap

A defined threshold level of income that individuals in a specific country must earn or have access to in order to satisfy basic survival needs.

international poverty line

A state where incomes, and so consumption levels, fall below the social norm within a country — so where the line sits differs from one country to the next.

relative poverty

An annual income level in the USA based on household size.

Federal poverty level (FPL)

Indicators that use multiple dimensions to assess the extent of poverty.

Composite indicators of measuring poverty

Individuals facing hardship in at least one third of ten indicators.

Multidimensionally poor

The condition of an individual, household, community, or country being extremely poor, lacking sufficient resources to meet basic human needs such as food, clothing, shelter, healthcare, and education.

poverty

The condition of being unable to access basic human needs necessary for survival.

Absolute poverty

The consumption of food evaluated in relation to the body's dietary requirements.

nutrition

The income threshold below which basic minimum needs cannot be met.

The national poverty line

The measure of the lowest necessary earnings for a socially acceptable lifestyle as determined by public consensus.

minimum income standard

The minimum income level required to maintain basic physical efficiency.

Poverty line

Composite indicators

Measures that use multiple dimensions or indicators to assess the level of poverty within a population. Unlike single indicators, they provide a more comprehensive understanding of poverty by considering both the extent and severity of deprivations experienced.

Deprivation

The condition of lacking basic necessities such as food, clean water, health care, and education. In the context of poverty measurement, it refers to the hardships individuals face when they are unable to fulfill these essential needs, often assessed through various indicators.

Multidimensional poverty

A comprehensive approach that evaluates poverty based on various factors, including health, education, and living standards. It identifies individuals facing significant deprivations across multiple indicators, thus offering a deeper insight into their quality of life.

Poverty and Human Development Initiative (OPHI)

A research initiative focused on developing multidimensional measures of poverty in collaboration with UNDP. It provides insights into various aspects of poverty, helping shape effective policies and strategies for human development.

United Nations Development Programme (UNDP)

An organization that collaborates on poverty measurement initiatives, notably the Multidimensional Poverty Index (MPI). It aims to address poverty through a multidimensional lens, enhancing understanding of the various factors affecting human development.

Weighted indicators

Specific measures in the Multidimensional Poverty Index (MPI) that assign varying levels of importance to different dimensions of poverty. These indicators reflect the severity of deprivation and are crucial for accurately assessing the overall poverty experienced by individuals.

extreme poverty

A state of absolute poverty where individuals lack the essential resources for survival, such as food, clean water, health care, and shelter. It is measured by the international poverty line, defined as those living on $1.90 or less per day, illustrating severe deprivation of basic human needs.

living wage

The minimum income necessary for a worker to meet basic needs such as food, shelter, and clothing. In the UK, it is calculated to ensure that employees can achieve a minimum acceptable standard of living.

malnutrition

A condition resulting from inadequate nutrition, often leading to serious health issues and high mortality rates. It is prevalent among those in absolute poverty, who lack access to essential resources like food and clean water.

poverty threshold

A minimum income level necessary for individuals to meet basic needs for survival, determining whether someone is classified as living in poverty. Below this threshold, individuals are unable to access essential goods and services required for a decent standard of living.

social exclusion

The process by which individuals or groups are marginalized and unable to participate fully in society, often linked to relative poverty. This exclusion can lead to severe consequences, including homelessness and mental health issues.

social security

Government transfer payments supporting people with little or no income — pensions, unemployment benefit, child allowances, disability payments — funded from taxation to put a floor under living standards.

The measurement of the relative share of national income earned by specific population percentages.

Degree of income equality

The method of dividing a dataset into ten equal parts, with each segment representing 10% of the total population.

deciles

The technique of splitting data into five equal segments, with each segment accounting for 20% of the population.

quintiles

income equality

The state where income is distributed evenly among the population, measured by the share of national income earned by different segments. High income equality indicates a fairer economic system.

national income share

The portion of total national income that is earned by specific segments of the population, used to assess income distribution and inequality within an economy.

population percentages

Statistical measures that divide the population into segments to analyze income distribution, such as deciles and quintiles, which help illustrate economic inequality.

Allocating resources specifically to groups or sectors identified as needing support.

Targeted spending

Financial assistance linked to specific activities like education or healthcare.

Conditional cash transfers

Laws that set the lowest legal pay rate for workers.

Minimum wage legislation

Measures aimed at preventing unequal treatment in labor markets and society.

Anti-discrimination policies

A tax structure where higher earners pay a larger percentage of their income.

Progressive tax system

Taxes levied on the profits of companies, contributing to government revenue.

Corporate taxes

The process by which government policies change the allocation of resources among individuals or households.

Redistribution

The overall sum of taxes that an individual or household is required to pay.HL

Total tax

taxable expenditureHL

The total amount of spending on which indirect taxes are levied, used to calculate the tax owed by individuals or households. It is essential for determining how much tax is paid based on consumption rather than income.