Government Policy on Poverty

Government Policies to Alleviate Poverty

Poverty is undesirable for governments as it leads to significantly reduced welfare and also has spillover effects (negative externalities) in terms of crime and health care.

Progressive taxation

Progressive taxes are designed so that the higher your income is, the higher the proportion of your income you pay in tax.
So the rich pay proportionately more tax than the poor.
This reduces the inequality in income and wealth.

Stimulate economic growth

Governments can generate economic growth using expansionary policies. This can be used to try to get people out of poverty.
This should also create jobs.
This should mean workers get higher wages and the government should collect higher tax revenue in return.
But this is difficult and inequality could worsen.

Minimum wages

A minimum wage could also be used to try to guarantee that workers receive a fair wage and can afford the basic needs.
- A minimum wage can also stop monopoly employers from paying workers too little and putting them in poverty.
Or a benefits system could be used.

Benefits

Governments pay benefits to those who are unable to support themselves due to being out of work, suffering from long-term illness or for several other reasons.
Benefits are an example of transfer payments and are funded through taxes.
Benefits are designed to prevent people from living in absolute poverty by meeting the cost of needs. By providing enough to ensure food, shelter and other essentials and for those who are temporarily unemployed it means they are fit enough to return to work.

State provision

State provision means that those goods and services which are deemed essential by the government are available for all regardless of income or wealth.
By providing schooling, children are given a more equal start in life regardless of their family background.
Without adequate schooling, the children themselves are limited in what jobs they can do when they are older which may keep them in poverty. They would also bring fewer skills to the workforce making the country less productive.

Economic Consequences of Government Policies to Help Poverty

There are a number of positive and negative consequences to government policies for tackling poverty:

Effects of progressive taxation

Progressive taxation can have unintended consequences.
By increasing the tax on higher income brackets, you are discouraging workers from earning more money.
The gain from working might not be as great as the loss of benefits from moving up an income bracket.
So progressive taxation can reinforce the poverty trap.

Effects of economic growth

Economic growth is not a simple way to alleviate poverty effectively. It must be carefully managed.
It can also impact the environment by using up scarce resources.

Effects of a minimum wage

In a perfectly competitive labour market, the introduction of a minimum wage can increase the levels of unemployment.
A national minimum wage underestimates the cost of living differentials across a country.
So a national minimum wage could be better for people who live in cheaper areas than for people who live in more affluent areas.
But the presence of a minimum wage could incentivise work.

Effects of the benefits system

The benefits system can disincentivize work.
This is bad for productivity and the economy.
Benefits that are means tested can also lead to a worsening of the poverty trap.
- If people think that their benefits will go down if their income increases, they may intentionally not go up an income bracket.

1Microeconomics

1.1Competitive Markets: Demand & Suply

1.1.1Markets & Demand

1.1.2Diminishing Marginal Returns

1.1.3Supply

1.1.4Market Equilibrium

1.1.5Price Mechanism

1.1.6Consumer & Producer Surplus

1.1.7IB Multiple Choice - Demand

1.1.8IB Multiple Choice - Supply

1.2Elasticity

1.2.1Elasticities of Demand

1.2.2Factors Affecting Price Elasticity of Demand

1.2.3Elasticity of Supply

1.2.4Price Elasticity of Supply

1.2.5IB Multiple Choice - Price Elasticity of Demand

1.2.6IB Multiple Choice - Price Elasticity of Supply

1.2.7IB Multiple Choice - Other Elasticities

1.3Government Intervention

1.3.1Indirect Taxes & Subsidies

1.3.2Application Question - Taxing Prices or Quantities

1.3.3Subsidies & Price Controls

1.3.4Deadweight Loss & Government Intervention

1.3.5Elasticity & Tax Incidence

1.3.6IB Multiple Choice - Government Intervention

1.4Market Failure

1.4.1Types of Market Failure

1.4.2Introduction to Externalities

1.4.3Negative Externalities

1.4.4Policy for Negative Externalities

1.4.5Positive Externalities

1.4.6The Deadweight Welfare Loss of Externalities

1.4.7Case Study - The Externalities of Education

1.4.8Public Goods & the Free-Rider Problem

1.4.9Asymmetric Information

1.4.10End of Topic Test - Market Failure

1.4.11Application Questions - Market Failure

1.5HL: Theory of the Firm & Market Structures

1.5.1Theory of the Firm & Market Structures

2Macroeconomics

2.1The Level of Overall Economic Activity

2.1.1The Circular Flow of Income

2.1.2Defining GDP

2.1.3Limitations of GDP

2.1.4IB Multiple Choice - Economic Indicators

2.1.5Business Cycles

2.1.6Output Gaps

2.2Aggregate Demand & Aggregate Supply

2.2.1The Aggregate Demand Curve

2.2.2Components of Aggregate Demand

2.2.3Shape of the Aggregate Demand Curve

2.2.4Shifts in Aggregate Demand

2.2.5IB Multiple Choice - Aggregate Demand

2.2.6Short & Long-Run Aggregate Supply

2.2.7Alternative Models of LRAS

2.2.8Equilibrium in the AD-AS Model

2.2.9Output Gaps & the AD-AS Model

2.3Macroeconomic Objectives

2.3.1Introduction to Unemployment

2.3.2Limitations of Unemployment

2.3.3Types of Unemployment

2.3.4Causes & Impact of Unemployment

2.3.5Defining Inflation

2.3.6Measuring Inflation

2.3.7Use of Index Numbers

2.3.8The Consumer Price Index

2.3.9Consequences of Inflation

2.3.10Causes of Inflation

2.3.11Inflation & Unemployment Tradeoff

2.3.12The Short-Run Phillips Curve

2.3.13The Long-Run Phillips Curve

2.4Economic Growth, Poverty & Inequality

2.4.1Measuring Economic Growth

2.4.2Determinants of Productivity

2.4.3Economic Growth & Productivity

2.4.4Absolute & Relative Poverty

2.4.5Inequality

2.4.6Inequality 2

2.4.7Lorenz Curve

2.4.8Government Policy on Poverty

2.4.9End of Topic Test - Poverty & Inequality

2.4.10Application - Inequality & Poverty

2.5Fiscal Policy

2.5.1Introduction to Fiscal Policy

2.5.2Fiscal Policy and AD-AS Model

2.5.3Fiscal Policy Lags

2.5.4Automatic Stabilizers

2.5.5IB Multiple Choice - Fiscal Policy

2.6Monetary Policy

2.6.1Objectives of Monetary Policy

2.6.2Monetary Policy Implementation

2.6.3Monetary Policy & AD-AS Model

2.6.4Monetary Policy Lags & Pitfalls

2.7Supply-Side Policies

2.7.1Supply-Side Policies

2.7.2Supply-Side Policies 2

3The Global Economy

3.1International Trade

3.1.1Globalisation

3.1.2Globalisation for LEDCs

3.1.3Globalisation for MEDCs

3.1.4Comparative Advantage & Trade

3.1.5Protectionism

3.1.6Arguments for Protectionism

3.1.7Arguments Against Protectionism

3.1.8End of Topic Test - Globalisation & Trade

3.1.9Case Study - Globalisation & Trade

3.2Exchange Rates

3.2.1Floating Exchange Rates

3.2.2Fixed Exchange Rate

3.2.3Effect of a Stronger & Weaker Dollar

3.3The Balance of Payments

3.3.1Balance of Payments

3.3.2Balance of Payments 2

3.3.3FDI & Reducing a BoP Deficit

3.4Economic Integration

3.4.1Customs Unions & WTO

3.4.2Merged Currency

3.5Terms of Trade

3.5.1Absolute & Comparative Advantage

3.5.2Gains from Trade

3.5.3Terms of Trade

3.5.4IB Multiple Choice - Comparative Advantage & Trade

3.6Economic Development

3.6.1Factors Influencing Growth & Development

3.6.2International Institutions

3.6.3Measures of Development

3.6.4Barriers to Development

3.6.5Case Study - The Bottom Billion

3.6.6End of Topic Test - Emerging & Developing

3.7The Role of Domestic & International Factors

3.7.1Interventionist Strategies

3.7.2Development Strategies

3.7.3Development Promotion Policies

3.7.4End of Topic Test - Growth & Global Development

3.7.5Application Questions -Growth & Global Development

3.8The Role of International Trade

3.8.1International Institutions

3.8.2End of Topic Test - Globalisation & Trade

3.9The Role of Foreign Aid

3.9.1Aid

3.9.2Limitations of Aid

3.9.3Support for Aid

3.9.4Application Questions - Developing Countries

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