Economics Coursework-Income Inequality

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Income inequality can be defined as the unequal distribution of income among a given population.  According to Monaghan (2016) over the past decade, there is a remarkable growth in unequal income distribution, resulting in the widening gap between the high-income earners and anybody else. As a concept income inequality is well described using the Lorenz curve where it is explained based on different groups of individuals in an economy who receive less or more than a proportionate amount of total income. Conversely, poverty refers to the severe constraints on normal living; it is divided into relative and absolute poverty. Poverty effectively reduces the level of consumption in a household as a result of the availability of insufficient disposable income to be spent on acquiring basic needs. Besides, progressive taxation refers to higher tax levels on high-income earners as opposed to low-income earners. Most of the parts of the world have implemented progressive taxation system as a way to reduce income inequality and poverty because high-income earners fund the larger portions of government services.

As a government policy progressive taxation is implemented as a way of reducing the levels of income inequality. According to the estimations provided by OECD, the average income of high-income earners is over five times that of low-income earners hence the need to implement government policy. Duncan and Peter (2012, p.3), asserts that progressive taxes are designed in a way that they collect a more considerable portion of income from high-income earners as opposed to low-income earners. This results in the reduction of inequality regarding income distribution. Progressive taxation aims at decreasing the tax burden on the disadvantaged in the society. Hence the system results in providing the low-income earners with more money; these are individuals who have the highest tendency of spending most of their income thereby efficiently stimulating the economy. This system is very beneficial to the respective governments' as it allows individuals who possess a more significant amount of resources as a way of financing most of the services provided to the general public, for example, the removal of snow.

            Progressive taxation is a government policy that plays a significant role towards the reduction of poverty levels in any country. For example, in the United Kingdom an increase in progressive taxes, such as a higher rate on income tax from 35% to 45% will significantly collect more taxes from high-income earners as opposed to low-income earners (Tejvan, 2016). The increase in progressive taxes reduces the level of regressive taxes thus increasing welfare benefits which play an essential role in the reduction of poverty levels. For that reason, the increase in progressive taxes is one of the most compelling ways of reducing levels of relative poverty. Poverty results and thrives in socio-economic disparities a situation that threatens the level of democracy in most of the OECD countries considering high-income earners can influence political decisions at the expense of low-income earners. A useful progressive tax system aids in the bridging of the gap between the gifted and the disadvantaged through various poverty reduction measures. This situation boosts the economy by stimulating consumer spending from low-income earners.

Progressive taxation is very useful in the reduction of poverty levels and tackling the problem...