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Income Redistribution – How It Works

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Redistribution of wealth and income is basically the transfer of wealth and income from some people to other people either by way of a legal mechanism like taxes, welfare, education, housing, money creation, public service, government intervention, land reclamation, property ownership or confiscation. It refers to the division of wealth, income or assets between two or more parties in exchange for a particular amount. There are two basic types of redistribution, direct and indirect.

Direct redistributive measures are usually taken by governments to aid poor and disadvantaged groups. Some examples include providing education and medical assistance. In general, direct redistributive measures are considered to be beneficial to the economy because it ensures that the wealth is distributed in accordance with need and not based on birth. However, the effects of these direct measures are limited. The indirect measures that are implemented by the government are less effective.

In general, indirect redistributive measures are more effective than direct ones. The main reason is that they help promote a better distribution of wealth by taking various actions and making sure that the distribution is fair and equitable. For instance, education is one of the most important indirect redistributive measure adopted by governments. It helps create an environment in which the poor are encouraged to get educated to provide them with the skills and knowledge they need in order to make a better living. Educational institutions themselves are another indirect redistributive measure.

Tax is another example of indirect redistribution. There are different forms of tax, depending on the nature of the activity involved. The income tax on the other hand is a direct measure of income redistribution. If you earn a high amount of money, you can pay a lot of taxes but if you don’t, you will have to face income tax problems.

Income tax is generally assessed according to your salary, age, residence, marital status, etc. The amount of tax that you will have to pay varies from one country to another, dependent upon various factors including your locality, the value of your home, how much you own and your income bracket.

Other indirect methods that are used to redistribute wealth are social services. These include tax exemptions, education and healthcare programs, freebies and grants. These programs are mainly designed to benefit certain groups that are usually more vulnerable and are more likely to need them.

Some examples of these programs include the Temporary Assistance to Needy Families (TANF) program, the federal family assistance scheme and the social grants. There is also the Food Stamp Program. that is similar to welfare. This program was introduced by the US administration during the Great Depression to help those families who cannot meet their basic needs.

Financial aid is another example. Financial assistance is provided by government to students in order to pursue higher education, trainees, to buy houses. Apart from this there are also many public programs like unemployment benefits, food stamps and the like. Public financial assistance programs are available for the self-employed, people with disabilities and people who are planning to set up a small business. The most important thing to note about public assistance programs is that they are usually conditional.

This means that they depend on whether or not the people will be able to pay the money they have given to them. It is also important to note that in most cases the people who receive these benefits are considered as low earners and therefore, receive lower allowances. These are the very reasons why the governments have limited the scope of this type of programs.

Government programs are also meant to distribute the wealth created by companies. These resources are also generally based on the income of workers in the company and their contributions to its profits.

Indirect wealth is thus, a result of several measures taken by the government. It is not only limited to income distribution but also involves the other types of wealth like housing and health care.

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