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Macroeconomics
Quick questions on Income distribution and inequality - TCE Economics (Tasmania)
2short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is causes of inequality?Show answer
Inequality arises from differences in wages (reflecting skills, education and bargaining power), ownership of wealth-generating assets, age and stage of life, and access to opportunity. Inheritance, housing wealth and the returns to capital can entrench inequality across generations. Some inequality is unavoidable in a market economy because it rewards skill, effort and risk-taking, which can be efficient. The policy question is how much is acceptable.
What is government redistribution?Show answer
Australian governments reduce inequality mainly through the tax and transfer system. The personal income tax is progressive, meaning higher earners pay a higher average rate, which narrows the gap between gross and disposable incomes. Welfare transfers, such as pensions, unemployment benefits and family payments, lift the incomes of the least well off. Government also reduces inequality in kind by providing services such as public health and education that benefit lower-income households most.
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