Economic Inequality: (2) Government Policies

In the previous chapter, we saw that the purchasing power of individuals in a market economy depended on the amount of resources owned, and the price received per unit of resources sold. Now government policies designed to affect the distribution of purchasing power can be conveniently divided into two groups: those which affect directly the incomes received from the sale of resources, and those which are aimed at reducing or increasing the quantity or quality of the resources owned. Into the first of these — which we shall call the ‘income’ category — fall such familiar redistributive tools as income taxes and social-security payments, which reduce and supplement respectively the income received by individuals from the sale of their resources in the market place. The second group — which we shall label the ‘resource’ category — includes taxes on wealth and nationalisation or state-appropriation policies, which affect individual holdings of (or claims on) capital and land. (This category should also include some government expenditures on education and on health care, since part of these are often explicitly redistributive measures, designed to improve the ‘labour resources’ of the poor by — in the case of education — giving them more marketable skills, or by — in the case of health — improving their ability to work.