Taxes take from the rich. These policies raise what the poor have.
Six policies beyond taxation
Invest in human capital
Free schooling, training and health care give the poor better chances.
Transfer payments
Cash to the poor: pensions, child benefit, unemployment benefit.
Targeted spending
Free school meals, public housing, subsidised clinics.
Universal basic income
The same regular payment to everyone, with no conditions.
Fight discrimination
Equal-pay laws and fair hiring rules.
Minimum wage
A legal lowest wage per hour.
The points to remember
- Conditional cash transfers pay only if children go to school and have check-ups: cash now, skills later.
- A universal basic income goes to everyone: Finland paid 2,000 unemployed people €560 a month in a 2017-2018 trial.
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A minimum wage raises pay at the bottom, but it can cost jobs.
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Every policy has a strength and a limit.
Strengths and limits
| Policy | Strength | Limit |
|---|---|---|
| Human capital | Tackles the cause: skills and health | Slow: pays off over decades |
| Transfer payments | Raise incomes at once | Costly; may weaken the incentive to work |
| Conditional cash transfers | Cash plus schooling and health check-ups | Need good schools and clinics nearby |
| Targeted spending | Reaches those in need directly | Some who qualify never claim |
| Universal basic income | Simple; no one falls through the net | Very costly to pay everyone |
| Anti-discrimination laws | Equal pay for equal work | Hard to enforce |
| Minimum wage | Higher pay for the low-paid | Jobs may be lost; misses the informal sector |
The points to remember
- Policies can work together: cash now, schooling for the future.
- Where many work in the informal sector, a minimum wage and income tax reach few of the poor.
Paper 3 ends with a 10-mark Recommend question: May 2022 and November 2022 asked for a policy to reduce income inequality.
Table 1 (made-up data)
| Kessland | |
|---|---|
| Gini coefficient | 0.42 |
| Share of tax revenue from indirect taxes | 40% |
| Share of tax revenue from income taxes | 15% |
| Public spending on education | 3% of GDP |
| Workers in the informal sector | 30% |
Using the data provided and your knowledge of economics, recommend a policy that the government of Kessland could introduce to reduce income inequality.
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.
How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Theory used effectively, figures from the text support the analysis, balanced evaluation |
| 7–8 | Policy fully explained with theory, figures from the text applied, evaluation mostly balanced |
| 5–6 | Policy explained, some figures from the text, evaluation one-sided |
| 3–4 | A suitable policy, little theory, no figures from the text |
| 1–2 | A policy named, little more |