8.2 Equity and redistribution of income and wealth

Equality means giving people the same treatment, resources or outcome. Equity means judging what is fair, which may require different treatment to account for needs, barriers or contributions.

A policy can increase equality of income while reducing perceived equity, or improve equity through targeted support without making incomes equal. The criterion must be stated rather than assumed.

Giving every learner the same textbook is equal; providing accessible materials to a learner with a visual impairment may be more equitable while using different resources.

Equity is not a synonym for equality, and a measured equal outcome does not prove the process or opportunity was fair.

Efficiency concerns maximising or avoiding waste of resources; equity concerns the fairness of distribution or opportunity. A policy can improve one without improving the other.

Redistribution may reduce inequality but weaken incentives or create administrative costs; an efficient market outcome may leave people without a socially acceptable share. The size of the trade-off is empirical, not a universal rule.

A progressive tax can finance education that raises opportunity and productivity, potentially improving both equity and efficiency; a badly designed tax may reduce work or investment more than the gain.

“Efficient” does not mean fair, and “equitable” does not automatically mean economically wasteful.

Absolute poverty means lacking resources to meet a defined minimum standard of basic needs. Relative poverty means having substantially fewer resources than the typical or median household in the society.

Absolute measures track purchasing power against a threshold that may be updated; relative measures reflect participation and inequality within a society. A person can move above an absolute line while remaining relatively poor if others’ incomes rise faster.

If a household’s real income doubles but the median income triples, absolute hardship may fall while its relative position worsens.

Neither measure alone captures every dimension of deprivation, and “poor” is not determined only by a single income number.

A poverty trap is a self-reinforcing cycle in which low income limits saving, health, education or investment, which keeps productivity and future income low.

The cycle is a mechanism, not a claim that every low-income household is unable to escape. Credit constraints, risk, poor infrastructure and unequal access can prevent a profitable investment from being made.

A farmer without affordable credit cannot buy irrigation; low yields keep income low, so the next season the same constraint remains. A targeted loan or infrastructure can break the cycle if it reaches the binding constraint.

The trap is not simply “people are poor because they do not work”; identify the missing asset, market or opportunity that reproduces poverty.

Policies include progressive taxation, transfers, minimum wages, public education and health, targeted benefits, anti-discrimination rules and measures that improve access to assets or employment.

Evaluate each policy by the group reached, incentive response, administrative cost, incidence, time horizon and whether it changes opportunity or only current income. Universal and targeted approaches involve different coverage and stigma trade-offs.

A cash transfer can reduce current poverty quickly; high-quality early education may improve opportunity and future productivity but takes longer to show in income data.

A policy’s label does not prove who benefits: a statutory minimum wage can help some workers and reduce jobs for others depending on the labour market.