Economics » Poverty and Economic Inequality » Government Policies to Reduce Income Inequality

Key Concepts and Summary

Key Concepts and Summary

Policies that can affect the level of economic inequality include redistribution between rich and poor, making it easier for people to climb the ladder of opportunity; and estate taxes, which are taxes on inheritances. Pushing too aggressively for economic equality can run the risk of decreasing economic incentives. However, a moderate push for economic equality can increase economic output, both through methods like improved education and by building a base of political support for market forces.

Glossary

effective income tax

percentage of total taxes paid divided by total income

estate tax

a tax imposed on the value of an inheritance

income

a flow of money received, often measured on a monthly or an annual basis

progressive tax system

a tax system in which the rich pay a higher percentage of their income in taxes, rather than a higher absolute amount

redistribution

taking income from those with higher incomes and providing income to those with lower incomes

wealth

the sum of the value of all assets, including money in bank accounts, financial investments, a pension fund, and the value of a home

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