Question

hello i am doing a research paper for my economic class about that question if you guys can provide with some good paragraphs preferable own words and no internet I would really appreciate it thanks in advance.

in what ways income inequality affects poverty?

Answer 1

Inequality can be seen as the disparity between the median and the average voter. The median voter would advocate for higher taxes on the wealthy, resulting in a disincentive to save and invest, thus increasing growth. While commonly cited, this earlier line of argument in the political economy is not well supported by evidence. A more recent argument suggests that inequality creates political instability, resulting in lower investment and wasting more resources on rent distribution. Instability also limits the ability of the government to respond to shocks and contributes to direct and opportunity costs due to violence in its more extreme form.

Economic factors as to why inequality reduces growth center around imperfections of the capital market and the role of the poor, not only as beneficiaries but also as contributors to economic growth. Because of credit rationing, the poor are often unable to afford the necessary initial investment in education or other investment, or are unable to obtain insurance for their investment, even if it is profitable, because they lack collateral. Initial distribution of wealth has an adverse effect on subsequent economic development, the savings rate of poor people is exceptionally high if they can expect higher returns for their labor and investment. If the poor are faced with increased incentives to invest / work, national income will decrease.

With lower growth, social inequality can establish self-fulfilling expectations equilibrium. This reduces the incentive to work / earn more if workers are paid according to social class, gender or ethnicity instead of what they achieve.