• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

benefits and costs of Government Intervention which aims to make the distribution of income CONSIDERABLY more equal.

Extracts from this document...


Assess the economic benefits and costs of Government Intervention which aims to make the distribution of income CONSIDERABLY more equal. Market failure occurs when the free market fails to allocate resources in the most efficient manner and therefore the government intervened in order to correct this market failure. Income is a flow of earnings generated or received over a period of time. Income inequality is often seen as market failure and thus there are many different approaches that the government can take in order to try to redistribute income more equally. They could simply introduce welfare-to-work strategies or increase benefits in kind; however, to make a more dramatic impact they would have to change the welfare benefit structure or tax structure. Welfare benefits are cash payments to those entitled to it, also called transfer payments. ...read more.


Indirect taxes are taxes on consumption. They are regressive, so as income falls, a higher proportion is paid, which is deemed to be unfair. In order to narrow income inequality, the government could raise taxes for higher income earners. By raising taxes, the government is able to redistribute income by spending the money on education, training and buildings etc that people on lower incomes can use - it is redistributed in an indirect way. However this may have the effect of people working less due to the back-bending labour supply curve as shown below. The supply curve above shows the optimum level of taxation with the maximum level of hours worked. If the level of tax is risen, then output will fall, and also if the level of taxation falls, due to the theory of the substitution effect. ...read more.


Therefore the most significant benefit of increasing welfare benefits to narrow income distribution is that in the short term, it will be effective, however the greatest disadvantage is that in the long term it will not be effective as is likely to act as a disincentive to work. The greatest advantage of changing the UK tax structure to narrow income distribution is that it is a long term solution. By lowering income tax to the lowest band of income earners will significantly increase their income and thus narrow distribution. However, by lowering income tax, the government may have to raise indirect, regressive taxes, which will not help the lower income earners, taking up more of their disposable income. Having weighed up the benefits and costs of both methods, a change of the tax structure in the UK is the best long term solution to equalise the distribution of income in the UK with the least amount of costs to society. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. Marked by a teacher

    Supermarkets in UK - An oligopily

    5 star(s)

    Waitrose was the only major supermarket to come out of this accusation relatively unscathed. Tesco has been subject to several claims of apparently out-of-date food being 'back-labeled' to appear to still be in date, poor caf´┐Ż hygiene and a staff member contracting legionnaires' disease in the Wrexham store.

  2. Is the Government to Blame for Higher Petrol Prices?

    43% of this Oil is used by heavy industry but a third is consumed in petroleum to fuel China's rapidly expanding love affair with the automobile. China has accounted for 40% of the growth in oil demand over the last four years.

  1. To make a decision whether to work or not a rational individual has to ...

    Finally, the transportation cost in our analysis will equal to 180 roubles per month. Suppose our imaginary student intends to work in a company or in a certain office. Usually such organizations' policies stipulate dress code. In these circumstances our student has to buy at least two smart suits or

  2. Free essay

    Characteristics of poverty in the UK

    therefore it may lead to helping the youth of the societies to become well educated and so it will lead to our economy continuing to be strong and prosper. This however will not affect the adults without kids including the pensioners.

  1. Assess the costs and benefits of an extension of the tube line to Croydon

    At price P2 and quantity Q2, the level (quantity) of disruption has been decreased by increasing the cost of disruption (most likely through some form of financial penalty enforced by the government). It is at this point that marginal social cost and marginal social benefit meet (i.e.

  2. Using the data and your economic knowledge, evaluate the view that the benefits resulting ...

    Also people are more likely to have a job as it would be the same as everyone else and far more worthwhile, as benefits would be far less. The inequality that would be removed is shown in Extract C which tells us how much the top 1% earns after taxes

  1. What Are The Effects Of Tescos Oligopolistic Market Structure, On Both Consumers And Producers?

    David Rae, head of convenience stores, said that 'Supermarkets sold lines at a loss to attract customers.' This appears to convey that lower prices are really just a 'disguise' and prices are bound to rise in the long run, once enough customers have been attracted.

  2. Measuring National Income

    This could be because they try to evade paying high amounts of taxes or the activity itself is illegal. Continuing from the previous point, much is not taken into account in the hidden or shadow economy. An example is if you were to employ a painter to paint your house,

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work