Income Inequality

• Where a high level of income inequality is seen as inequitable, policies may be introduced to:

  • Close the income gap
  • Ensure minimum consumption for low-income households
• Measures to reduce income inequality:

  • Direct and Indirect subsidies
  • Vouchers
  • Means-testing
  • Minimum wage
  • Progressive Wage Model (PWM)
  • Price ceilings on necessities
  • Financing schemes
  • Continuing Education and Training (CET)
• Flaws of subsidies and means-testing:

  • Effect on government's budget
  • Indirect subsidies causing allocative inefficiency
  • Effect on work effort
• Benefits of subsidies and means-testing:

  • Effect on government's microeconomic goal of equity
  • Direct subsidies does not distort price signals
• Flaws of Continuing Education and Training (CET):

  • Short-term effect on government's budget
  • Uncertainty of outcome
  • Long gestation period
• Benefits of Continuing Education and Training (CET):

  • Long-term effect on government's budget