Tutorial 9, Week 11

1.    Government policy & Inequality (sec. 19.8)

For each of the following government polices, indicate:

a)  If it is a redistribution, predistribution policy or both

b)   If it is likely to be progressive, regressive or neutral.

1.   Increase in transfers to unemployed people, such as the JobSeeker allowance in Australia

2.   Transfer of $3,000 to low-income mothers following the birth of a child

3.   Increase in income tax rate of high-income households.

4.   Creation of an inheritance tax

5.   Increase in VAT on high sugar and high salt content food items

6.   A tax where everyone pays the same nominal amount to the government

7.   A scholarship for free university education and living allowance to the top applicants, regardless of their family income level

8.   Creating an income tax that is the same for everyone (for example, everyone is taxed 30% of their income).

2. Explain why intergenerational mobility can best be addressed with predistribution than with purely redistribution policies.

3. Inequality & labour market model (Sec. 19.6)

Consider that the government makes providing high quality public education a top national   priority, and implements a range of policies that increase the skills and productivity of school graduates. Referring to the diagram below depicting the labour market equilibrium (at Point  X in the diagram on the left side) and the level of inequality (Lorenz curve and Gini               coefficient in the diagram on the right side) prior the policy, explain what will happen to the  labour market equilibrium and inequality after the policy.