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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Remember it as: Higher pay for those employed; fewer jobs if set too high.
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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 2 asked this in May 2024, as part (g) for 15 marks, about a country's own policies.
Text A (made-up): Talvane's Gini coefficient is 0.45, and 22% of its people live below the national poverty line, most of them in rural areas. Half of all workers are in the informal sector. In 2022 the government began paying a monthly cash transfer to poor families, on condition that their children attend school and have health check-ups; it costs 0.6% of GDP. It also raised the minimum wage by 15% and now gives free meals in primary schools. The budget deficit has risen to 5% of GDP.
Using information from the text and your knowledge of economics, evaluate the policies used by the government of Talvane to reduce poverty and income inequality.
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How the 15 marks are given
| Marks | What your answer needs |
|---|---|
| 13–15 | Theory fully explained, terms right all the way through, balanced evaluation, real examples fully developed to support the argument |
| 10–12 | Theory explained, terms mostly right, evaluation mostly balanced, real examples developed |
| 7–9 | Theory partly explained, some evaluation but one-sided, examples partly developed |
| 4–6 | Theory only described, evaluation superficial, examples only named |
| 1–3 | Theory stated but not relevant, no evaluation |