Causes and Effects of Inequality and Poverty

Causes (AO2)

• Inequality of opportunity: Some have less access to opportunities than others, leading to less economic prosperity

• Different levels of resource ownership

• Different levels of human capital: Some have accumulated more skills, knowledge, and experience in working

• Discrimination

• Unequal status and power

• Government tax and benefits policies: Indirect taxes primarily affect the poor, and tax breaks for the rich make things more unequal

• Globalization and technological change: While it can boost economies, outsourcing and technological change can lead to large structural unemployment

• Market-based supply-side policies: They aim to remove regulations to make markets more efficient, but deregulation, tax breaks, and trade liberalization will all benefit big firms and leave poor people worse off (unlike what Reagan said)

Effects (AO2)

• Economic growth: 

  • • Inequality could on one hand incentivize hard work and good education (so that you can "make it"), which increases Aggregate Supply.

    • However, it could also lead to dissatisfaction, protests, and more government money spent on transfer payments to the poor. More inequality may also disincentivize entrepreneurship, as small firms will be unable to compete with the large multinational companies.

• Standards of living:

  • • Standards of living will improve more for rich people and less for the poor. The rich will be able to afford better educations, increasing inequality and the gaps in standard of living.

• Social stability:

  • • More equal countries like the Nordics have relatively low crime rates and higher rates of trust and respect. 

    • Less equality generally leads to more unrest and violence.