Redistribution of Wealth - Public vs Private Remedies - Research Paper Example

REDISTRIBUTION OF WEALTH (PUBLIC VS. PRIVATE REMEDIES) Task Redistribution of Wealth (Public vs. Private Remedies) Introduction Most global economies suffer an unfair distribution of wealth whereby the rich keep getting richer while the poor keep getting poorer. There is an increased incidence of the poverty gap, which is the difference between the richest person in the country and the poorest person in the same country or operating under the same economy. In fact, most countries and economies have similar cases of a few hundred millionaires who are filthy rich in contrast to a large magnitude of the population, which lives below the poverty line. These inequalities in income create an economic strife in such a way that the rich continue exploiting the poor in order to increase their wealth threshold, as well as, amass more wealth. On the other hand, the poor persons tired of living in deplorable living conditions and under the oppression of the rich result to uncouth means of income generation in order to flee from poverty. These include drug trafficking, prostitution, petty theft, and sometimes robbery with violence (Berg & Ostry, 2014). Consequently, it is imperative for concerned officials to come up with an income redistribution scheme that enables even the poor persons within an economy to have something tangible to call their own. This also enables the government of the day to reduce the income gap to a considerable level, and as such, rid of the society vices that accrue from stinking poverty within the country such as robbery and prostitution. In addition, wealth redistribution also enables the country to create an optimal environment for economic growth and development whereby all members of the economy are willing, able and ready to work hard for their living and be sure of improving their personal incomes, as well as, conditions of living (Champernowne, 1953). Literature Review Redistribution of wealth or income refers to the systematic transfer of wealth, income, or property from those members of the economy who have more to others who have less courtesy of social mechanisms such as tort law, charity, divorce, taxation, welfare, as well as, monetary policies. The various desirability and the effects of wealth and income redistribution gets both active and passive debates and critics on economic grounds and ethical grounds. As such, whenever analyzing this subject, it is imperative for market players to incorporate various aspects of the concept such as its rationales, means, objectives, as well as, policy effectiveness. However, both grounds provide and advocate for wealth redistribution in order to create an environment of equality and diversity within the economy. This environment also enables the performance of economic activities in a free and fair economic environment without any discrimination based on income levels and social status (Clement, Gallegati & Kaniadakis, 2012). Various types of wealth redistribution are applicable in the modern world economies. In fact, most democratic countries undertake income redistribution of some kind in order to create an environment with equality and diversity. For instance, a progressive income tax system taxes heftily a high-income earner as opposed to a low-income earner. This means enables the government to retrieve a considerable amount of cash from the rich and powerful and distribute it to the low-income earners. In fact, low taxes that these low-income earners pay as opposed to the high-income earners is a way of increasing their wealth since they get to keep a considerable amount of their income, as opposed to the rich who lose a big chunk of theirs to taxation. In such consideration, the difference in the Gini Index for an income distribution carried out before taxation, as opposed to the Gini index after taxation clearly indicates the effects of such taxation. The two common types of wealth redistribution used by most governments are subsidies and vouchers, such as food stamps. The funding of these “transfer payment” programs takes place through general taxation in order to benefit the poor who pay fewer taxes or no taxes at all. As such, most beneficiaries of such transfer payment programs prefer to get hard cash directly than to benefits from their economic subsidies indirectly. However, this measure gives the society a much stronger measure of control over how to spend the funds saved through such income redistribution measures due its palatable platform (Pennington, 2013). As such, the society can engage these funds into various mechanism that will enable low income earners within the economy to improve their scores of income such as through improvement of public utilities and infrastructure that are aids to trade, such as road and rail network, telecommunications, water and sanitation, as well as, health and well being of the citizens. Redistribution of wealth serves a number of objectives both for the economy, as well as, for the society. In most cases, the redistribution of wealth in most economies incorporates the funding or financing of public services. This is evident, considering the supporters of redistributive policies, who argue that the less stratified economies enjoy a more socially just setting under the concept wealth redistribution. Consequently, one of the major bases of redistribution of wealth is the concept of distributive justice. the premise of this advocates that resources and money require appropriate distribution in order to end up with a setting that is socially just, and if the economy allows, creation of a society that is more financially egalitarian. Income and wealth redistribution empowers the middle class within the society thereby creating a larger outlay of the middle class. This in return benefits the economy through empowering more people within the economy to be consumers, as well as, providing equal opportunities for such individuals to reach out to a better living standard. This would rarely be the case in the event that only the rich had the ability to buy and sell products within the economy. This would also lead to a slow economy whereby the country sells only few of its products because more people are not in a position to make purchases within the economy. Proponents of this concept argue further that a society, which is truly fair, requires organization in a manner that benefits the least advantaged most, as well as, create room for permissible inequality just as long as it benefits the less advantaged within the economy. Proponents of redistribution further argue that capitalism results in externality, which creates an unequal distribution of wealth. This is evident through various economic studies conducted on wealth redistribution, which outlines that a lower rate of redistribution increase inequalities arising from future incomes owing to the restraints on wealth investments in both physical and human capital. Methodology Various models enable the practice and effect of income redistribution across different markets. The major argument within this sector is the public remedies of income redistribution as opposed to the private remedies of the same. Public remedies of income redistribution include the development of social equality through creation of a viable environment that enables all members of the economy to be in a position to purchase products and services. Furthermore, this creates a viable opportunity for the economy to grow in a non-discriminatory manner, which creates room for equitable development and growth across all sectors of the economy. The government undertakes most of the public remedies of income or wealth redistribution by undertaking generalized mechanisms such as taxation and subsidies. These methods affect all members of the economy, but particularly target the poor or the low income within the society in order to enable them increase their financial footing Statistics prove that wealth and income redistribution are beneficial to the developing economies as it creates a room for the economy to grow and develop through all sectors. This is unlike an economic setting whereby there are lesser richer people within an economy contrasted to high masses of the population that are below the poverty level gap. However, opponents of the public remedies of income redistribution argue that these measures taken by the government are unfair for the rich and may lead to an economic collapse in such a way as it discourages the rich people to work harder. This is because, for instance through a progressive taxation system, the rich end up paying higher taxes with an increase in their incomes or earnings. As such, in order to avoid paying hefty taxes to the government because of their high-income levels, the rich slacken in their economic production activities and reduce their revenue or income within a given financial period, and as such, only pay minimal amounts of taxes (Pennington, 2013). However, there are private remedies of wealth redistribution that are favorable for both the low-income earners and the high-income earners. This includes dividend payouts by companies, as well as, reduction of market externalities through provision of viable market forces favorable for both sides of the divide. For instance, in dividend payments, the company may decide to retain a significant chunk of its profits for development projects rather than sending it to the market through hefty payouts of dividends to its shareholders (Clement, Gallegati & Kaniadakis, 2012). Evaluation It is evident that income and wealth redistribution has both economic and social benefits to the country. In the economic sector, the country benefits from an increased economic ability of most members of its middle income state or level to afford economic services and resources. As such, the more people who are independent and financially stable within an economy, the stronger the economy is in both growth and development. This is because more people in the country are in a position to undertake sustainable economic activities, which in turn enable the economy to grow and develop through time. On the social sector, the redistribution of income eliminates discrimination related to wealth and income inequalities. As such, having people with a similar level or state of income and wealth within a society creates an ambience and harmony, which develops peaceful coexistence of various members within the society, both the extremely rich and the middle-income earners. It also reduces the social vices that result from income inequalities and poverty (Champernowne, 1953). Conclusion In conclusion, it is advisable for every economic setting to undertake a sustainable income and wealth redistribution program because it has more benefits to the economy at large, rather than remaining in the same economic situation whereby there are few rich or wealthy persons as opposed to a multitude of low-income earners. This also gives room for economic growth and development over the years in such a way that the economy has more people that are able and have the capacity to undertake sustainable economic activities such as buying and selling of goods and services. Income redistribution further helps a society to get rid of vices resulting from poverty and income discrimination such as theft and robbery (Berg & Ostry, 2014). Appendices Figure 1: World Distribution of Wealth and Population in the Year 2000 Figure 2: Graphical representation of the Gini coefficient The graph shows that the Gini coefficient is equal to the area marked A divided by the sum of the areas marked A and B. that is, Gini = A / (A + B). It is also equal to 2*A due to the fact that A + B = 0.5 (since the axes scale from 0 to 1). Figure 3: The distribution of net wealth in the United States, 2007. The chart is divided into the top 20% (blue), upper middle 20% (orange), middle 20% (red), and bottom 40% (green). (The net wealth of many people in the lowest 20% is negative because of debt.) References Berg, A. & Ostry, J. (2014). Treating Inequality With Redistribution: Is The Cure Worse Than The Disease. iMFDirect, February 26, 2014. Retrieved from http://blog-imfdirect.imf.org/2014/02/26/treating-inequality-with-redistribution-is-the-cure-worse-than-the-disease/ Champernowne, D. (1953). A Model of Income Distribution. The Economic Journal Vol. 63, No. 250 (Jun. 1953), Pp. 318-351. Clement, F., Gallegati, M. & Kaniadakis, G. (2012). A Generalizes Statistical Model for the Size Distribution of Wealth. Journal of Statistical Mechanics: Theory And Experiment, 6 December 2012, Start Page: P12006 Pennington, M. (2013). To Fix Income Inequality, The Have-Nots Must Become The Do-Somethings. Forbes, March 8, 2013. Retrieved From http://www.forbes.com/sites/maurapennington/2013/03/08/to-fix-income-inequality-the-have-nots-must-become-the-do-somethings/ Read More