Equality & Equity
- 2. A2 Economics Equity & Equality Learning Objectives To understand the concept of equality To understand the concept of equity
- 3. Last summer in Microeconomics Distribution of Income Distribution of Wealth Inequality •Causes •Consequences Equity & Learning Objectives To understand the concept of equality Equality To understand the concept of equity
- 4. Equality – the situation where goods and services in a society are distributed equally The benefits of equality: •Improves social cohesion – less difference •Improves health – greater access •Can encourage economic growth – less saving Issues 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 constraint in the economy
- 5. Equity Equity – the concept of ‘fairness’ http://www.tutor2u.net/economics/content/topics/marketfail/ notions_equity.htm There can be no universal definition of equity: •What some will consider fair reward for work done, others may consider unfair •Refers to a “good” distribution of welfare across society The significance of equity: •The concept of fairness will be part of the economic policy making process •Many economic policies will aim to improve equity
- 6. Types of Equity Equity applies in the construction of tax systems: Horizontal Equity - people with a similar ability to pay taxes should pay the same or similar amounts Vertical Equity - people with a greater ability to pay taxes should pay more Truly equitable tax systems will deliver horizontal and vertical equity. E.g. income tax has both horizontal and vertical equity.
- 7. Redistribution Using the tax and benefit system to transfer wealth from the wealthy to the poor. •20% standard tax rate •40% higher tax rate •50% tax rate on high income earners – but will end soon Improves equity: •Raises consumption by the poor Issues: •May damage the incentive to work •Deadweight loss caused by inefficiency of taxation
- 8. Essay of the week In trios, discuss the benefits and constraints of using the tax system to create a more equitable society. What else could make society more equitable? Essay question: Assess the view that poverty can be eliminated solely through changes 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 equality Equality To understand the concept of equity