Should the government intervene in the economy? Tejvan Pettinger economics One of the main issues in economics is the extent to which the government should intervene in the economy. Free market economists argue that government intervention should be strictly limited as government intervention tends to cause an inefficient allocation of resources.
History[ edit ] In ancient times, redistribution operated as a palace economy. Another early form of wealth redistribution occurred in Plymouth Colony under the leadership of William Bradford. Free-market capitalist economies tend to feature high degrees of income redistribution.
However, Japan's government engages in much less redistribution because its initial wage distribution is much more equal than Western economies. Likewise, the socialist planned economies of the former Soviet Union and Eastern bloc featured very little income redistribution because private capital and land income — the major drivers of income inequality in capitalist systems — was virtually nonexistent; and because the wage rates were set by the government in these economies.
In his article Redistribution,  Dwight R. Instead, government takes from the relatively unorganized e. The most important factor in determining the pattern of redistribution appears to be political influence, not poverty.
Another way is by restricting competition among producers.
The inevitable consequence—indeed, the intended consequence—of these restrictions is to enrich organized groups of producers at the expense of consumers.
Here, the transfers are more perverse than with Medicare and Social Security. They help relatively wealthy producers at the expense of relatively poor and, in some cases, absolutely poor consumers.
Many government restrictions on agricultural production, for example, allow farmers to capture billions of consumer dollars through higher food prices see agricultural subsidy programs.
Most of these dollars go to relatively few large farms, whose owners are far wealthier than the average taxpayer and consumer or the average farmer. Two other common types of governmental redistribution of income are subsidies and vouchers such as food stamps.
These transfer payment programs are funded through general taxation, but benefit the poor or influential special interest groups and corporations. Social Security program redistributes income from the rich to the poor, but the majority of those receiving Social Security earned their benefits through tax withholding from their paychecks or quarterly income statements, and most benefits are indexed to the actual earning levels of individual workers.
Only the highest- and lowest-income workers fall outside normal rates.
|Redistribution of income and wealth - Wikipedia||Miron Winter Too often, the ends that policymakers pursue are poorly served by the means through which they pursue them.|
|Rethinking Redistribution | National Affairs||Finegold Catalan The debate about whether or not government spending is a useful countercyclical tool has been revived by the continuing economic crisis.|
Contrary to popular belief, a recent study  found that, overall, the Social Security System was slightly regressive against the poor and not redistributive, once important factors were taken into account for example, the longer life expectancy of the wealthy when compared to the poor gives them more years to collect benefits.
Governmental redistribution of income may include a direct benefit program involving either cash transfers or the purchase of specific services for an individual.
Medicare is one example. This is a direct benefit program because the government is directly providing health insurance for those who qualify. The difference between the Gini index for the income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation.
Before-and-after Gini coefficients for the distribution of wealth can be compared. Objectives[ edit ] The objectives of income redistribution are to increase economic stability and opportunity for the less wealthy members of society and thus usually include the funding of public services.
One basis for redistribution is the concept of distributive justicewhose premise is that money and resources ought to be distributed in such a way as to lead to a socially justand possibly more financially egalitariansociety.
Another argument is that a larger middle class benefits an economy by enabling more people to be consumerswhile providing equal opportunities for individuals to reach a better standard of living. Seen for example in the work of John Rawls ,[ citation needed ] another argument is that a truly fair society would be organized in a manner benefiting the least advantaged, and any inequality would be permissible only to the extent that it benefits the least advantaged.
Some proponents of redistribution argue that capitalism results in an externality that creates unequal wealth distribution. This view was associated with the underconsumptionism school in the 19th century, now considered an aspect of some schools of Keynesian economics ; it has also been advanced, for different reasons, by Marxian economics.Government Policies to Reduce Income Inequality Chapter Issues in Labor Markets: Unions, Discrimination, Immigration Government Policies to Reduce Income Inequality Explain the arguments for and against government intervention in a market economy; Identify beneficial ways to reduce the economic inequality in a society;.
Not surprisingly, redistribution policies take a greater share of the income of families in the top 1 percent. In , these families earned percent of the nation’s income, or nearly $ trillion.
Government tax and spending policies redistribute $ million from these families, a . The first common argument for anti-poverty spending is that the alleviation of poverty is what economists call a "public good" — something everyone would like to see provided, but which few people provide voluntarily because they hope others will do it for them.
or the need to insure against low income — do not apply when it comes to. Redistribution of income is a policy to reduce the inequalities of income so that incomes are distributed more evenly.
The reason for which the govt redistributes income is so the income gap between rich and poor is reduced. An Argument against the Government's Use of Taxes and Public Spending to Redistribute Income PAGES 2.
WORDS View. Chief among them is the earned-income tax credit (EITC), a wage top-up for low earners.
Not surprisingly, redistribution policies take a greater share of the income of families in the top 1 percent. In , these families earned percent of the nation’s income, or nearly $ trillion. Government tax and spending policies redistribute $ million from these families, a . Chief among them is the earned-income tax credit (EITC), a wage top-up for low earners. The child tax credit, a refund for parents, is another. Start studying macro midterm 2. Learn vocabulary, terms, and more with flashcards, games, and other study tools. disposable income. government spending. disposable income. Contractionary fiscal policy includes: government spending or taxes to close a recessionary or inflationary gap.
The child tax credit, a refund for parents, is another. If we redistribute income, we diminish that incentive, but only very gradually unless the marginal tax rate is very high.
(This is the idea behind the Laffer curve, but Laffer had the shape wrong.) Redistributing income, while it only has slight costs, has great benefits.