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Critically examine the view that governments should never take action to reduce income inequality

Critically examine the view that governments should never take action to reduce income inequality

Answers

Lydia
Classical economists are opposed to the government taking action to redistribute household income. They argue that if the government takes no action the money will filter down to the poor naturally, through the working of the market economy. They argue that government action to redistribute income actually reduces the incentive to work for both the rich and the poor and is therefore counterproductive.

However, most economists would argue that some form of redistribution is necessary.
They argue that if society is too unequal it will lead to great social problems.
Evidence suggests that there is a strong correlation between inequality rates and social problems such as obesity, alcohol abuse and crime levels.
They also suggest that redistribution will increase total utility in an economy since the utility the poor receive from each extra pound is greater than the loss of utility the rich suffer from giving up an extra pound.
They also argue that redistribution actually benefits the whole of society and the economy, since the poor will spend all of their additional income, which will benefit the economy and create further jobs.

Obviously some balance is needed between a tax and benefit system, which is both fair and protects the poorest in society, and one which does not punish those who have worked hard to earn a good income, and rewards those who are reluctant to seek employment.
lydiajane74 answered the question on July 4, 2018 at 10:38

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