Practise macro policy choice by comparing fiscal, monetary, exchange-rate and supply-side tools for inequality or business support.
Between 2008 and 2018, income inequality, as measured by the Gini coefficient, increased from 0.43 to 0.51 in Angola and from 0.34 to 0.41 in Bulgaria.
Evaluate government policies that could be used to reduce income inequality in a developing country of your choice.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.
Knowledge, Application, Analysis (12 marks) - indicative content
- Understanding of income inequality
- May be shown by a Lorenz curve diagram
- Increase in progressiveness of tax system, for e.g. by introducing more tax bands/increasing tax free allowance; increase in taxes on unearned incomes e.g. rental and dividend income - increases government revenues that can be used as welfare payments to support the low-income households
- Increasing means-tested benefits (not universal benefits), e.g. food stamps, unemployment benefit and housing benefit - provides income support to only those households that need it the most
- Introduction of/increasing the National Minimum Wage: higher incomes; wage differentials between the unskilled and skilled workers will decrease
- Improvements in education and training for those without qualifications: increases human capital, productivity and therefore incomes
- Measures to reduce unemployment - for e.g., governments could implement reflationary fiscal policy or supply side policies to create jobs
- Place restrictions on immigration of unskilled workers as this will reduce downward pressure on wages of those on low incomes
- Reduction in taxes on expenditure and/or other regressive taxes: will take lower percentage of disposable income of the low-income households
- Improvements in government provision of public services such as healthcare, education, social housing; provision of pension schemes
- Measures that increase the power of trade unions: more workers are likely to be employed permanently/full-time rather than part-time or on zero-hour contracts - stable incomes; help to reduce monopsony power of employers
- Reduction in incentives to have large families e.g. reduction in child benefits
- Price caps/subsidies on essential goods and services e.g. energy, food
- Measures to reduce discrimination e.g. age and gender
N.B. Award maximum of Level 3 (9 marks) if a candidate does not refer to a developing country in their answer
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate examples.
Descriptive approach which has no chains of reasoning.
Level 2
4-6
Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models.
Limited application of knowledge and understanding to economic problems in context.
A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3
7-9
Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4
10-12
Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question.
Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.
Evaluation (8 marks) - indicative content
- Progressive tax increases may cause increase in number of tax exiles or increase in tax evasion and avoidance; fall in tax revenues (using Laffer curve analysis); does not address the underlying cause of income inequality
- Administrative costs associated with means-testing may be high; inflation may mean that the benefits might not increase in real terms; can also act as a disincentive to work
- Introduction/increase in the NMW might result in higher unemployment and an increase in inequality; wages/unearned incomes of those in the highest income brackets might increase at a faster rate; this has no impact on the unemployed, students, pensioners, etc.
- Depends on quality and relevance of improvements in education and training - what courses have been promoted; time lags before reduction in inequality
- Even after reducing unemployment, wages may still be below benefits hence not creating an incentive to work; could have inflationary consequences
- Could result in a decline in the working population and therefore productive potential could decrease in the long run
- Might lead to a reduction in government revenues and hence less spending on measures which could reduce inequality
- Increasing the trade union power will lead to inflexible and inefficient labour markets; unlikely to attract FDI and hence less jobs may be created
- Different factors more or less important for different countries; prioritisation
- One policy on its own is unlikely to be effective but a combination of policies needs to be implemented to reduce the rising income inequality
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2
4-6
Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3
7-8
Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.