Redistribution of incomes

Ways of redistributing income

There are three ways of redistribution income:

1. Progressive taxation, i.e. the higher income you have the bigger part of your income you have to pay in taxes.

2. Transfer payments, e.g. cash benefits, the state education grant, unemployment benefit(s), sickness benefits, state pension and child allowance.

These are especially given to people with low incomes and is the most important way of redistributing.

1. Free services, e.g. hospitals, education etc. These make up a relatively bigger part of the total income of the low-income groups than that of high-income groups.

Equality: Pros and cons

Pros:

• Higher level of welfare in the society as $1 more raises the welfare for a poor man more than $1 less reduces the welfare for the rich man.

• More poor people get an education → higher productivity

• Less criminality, more coherence and solidarity and more safety.

• More happiness (see The Spirit Level by Wilkinson and Pickett)

Cons:

• Lack of reward and incentive to make an extra effort (e.g. working longer hours, taking longer educations etc.) → lower productivity.

• Scares highly educated foreigners away and make highly educated natives go abroad → lower productivity.

• Companies and thereby jobs move abroad

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