INTERNATIONAL MONETARY FUND ?N?ALLAHTopic B: The impact of income inequality on redistribution and growthTABLE OF CONTENTSKey TerminologyGeneral OverviewPossible SolutionsPoints to Consider Bibliography Key TerminologyTaxation refers to compulsory or coercive money collection by a levying authority, usually a government. The term “taxation” applies to all forms of involuntary levies, from income to capital gains to estate taxes. Welfare is a government supported programme which provides financial aid to individuals or groups who cannot support themselves.
Farmer land rights protest in Jakarta, IndonesiaLand reform refers to a government-initiated or government-backed property redistribution. Monetary policies consist of the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affect interest rates. Confiscation is a legal form of seizure by a government or other public authority as punishment or in enforcement of the law. Tort law covers most civil lawsuits. Essentially, every claim that arises in civil court, with the exception of contractual disputes, falls under tort law. The concept of this area of law is to redress a wrong done to a person and provide relief from the wrongful acts of others, usually by awarding monetary damages as compensation.
Predistribution is the idea that governments should try to prevent income inequality in the first place instead of trying to balance it later via taxation, welfare, confiscation etc. Minimum wage is the lowest wage per hour that a worker may be paid, as mandated by federal law. The minimum wage is a legally mandated price floor on hourly wages, below which workers may not be offered or accept a job.Living wage refers to a theoretical wage level that allows an individual to afford adequate shelter, food and the other necessities. A living wage should be substantial enough to ensure that no more than 30% of it gets spent on housing. The goal of a living wage is to allow employees to earn enough income for a satisfactory standard of living.Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another.
It can be measured in nominal or real terms, the latter of which is adjusted for inflation. II. General OverviewRedistribution of wealth and welfare is an economic policy with which the government aims the fair share of wealth via taxation, monetary policies, confiscation, tort law etc. Another policy associated with redistribution is predistribution, which roughly describes the idea which projects the governments trying to prevent income inequalities instead of trying to fix them through taxes and monetary policies later on. Redistribution is amongst the most controversial economic policies, with 71.
2% of the 264 members of the American Economic Association supporting, 20.4% opposing and 7.2% having mixed feelings about it, according to a 2003 survey.The increasement in income inequality may have favourable effects on growth, as well as adverse effects. Some of the favourable effects are strong performance incentives, incentives to invest in one’s own human capital and incentives to make investments. And social inequalities, political turmoil, and decline in demand may be counted as the adverse effects of the increasement of income inequality.While during the 1950s and 1960s these increases had mostly favourable effects, it is believed that currently, we’re experiencing its adverse effects. The decreasement in income inequality must not be limited to redistribution, nonetheless.
Reduction of income inequality and redistribution policies are at the heart of every discussion, believed to be the core principles on our way to sustainable economic growth. A rising trend in political debates in any case, there is no empirical evidence suggesting that redistributive policies, such as taxes and social benefits, harm economic growth. Relationships between redistribution, inequality an growth according to Ostry et al. (2014)III. Possible Solutions IV. Points to Consider Is inequality and redistribution bad for growth?Does growth affect inequality?Does inequality trigger redistribution?