Policies to Alleviate Poverty (Cambridge (CIE) O Level Economics)

• Removing protectionism or engaging in expansionary demand and supply-side policies will promote growth

• Data shows that economic growth has a very positive impact on economic development

• In most cases growth precedes development
  

• Often in less developed countries, economic growth is linked to one industry and generates many negative externalities of production possibly resulting in decreased living standards

Higher growth → higher wages → better education/healthcare → better human capital → better productivity → higher income

• Investing in this supply-side policy increases the potential output of the country (shifts the production possibility frontier outwards)

Higher education/skill levels → higher human capital → increased productivity → higher output → higher income

• State benefits are usually given to the poorest and most vulnerable people in society

• State benefits include unemployment and disability payments, pension payments, heating discounts, public transport subsidies etc.

More benefits → higher wages → better education/healthcare → better human capital → better productivity → higher wages

• A progressive tax system redistributes from those with higher income to those with lower income and reduces income inequality

• Redistribution often starts with the provision of free education and healthcare

• Sometimes the benefits of a good progressive tax system are eradicated by the penalties imposed through multiple regressive (indirect) taxes

Higher redistribution → better education/healthcare → better human capital → better productivity → higher income

• Minimum wages are set above the free market rate

• Firms are not allowed to pay anyone less than the legal rate

Higher wages → better education/healthcare → better human capital → better productivity → higher wages