Policies to Alleviate Poverty (CIE IGCSE Economics)

Policy

Promoting economic growth

• Removing protectionism or engaging in expansionary demand & 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 & 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

Improving education

• 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

More generous state benefits

• State benefits are usually given to the poorest & most vulnerable people in society
• State benefits include unemployment & disability payments, pension payments, heating discounts, public transport subsidies etc.

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

Progressive taxation

• A progressive tax system redistributes from those with higher income to those with lower income & reduces income inequality
• Redistribution often starts with the provision of free education & 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

Establishment/increase of national minimum wage

• 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