Question

Explain how equity can be achieved through fiscal policy.

Answer 1

The main goal of economic policy in developing nations is growth with justice. By lessening the current disparities in wealth and income, equity aims to make the allocation of income more equitable. Redistributive taxation and public spending policies can be used to lessen income and wealth disparities. The following methods can be used to accomplish this:

1. The wealthy should pay significantly more in taxes than the poor under a progressive tax system. The wealthy should pay high direct taxes, but the extremely poor should not be subject to them.
2. Luxurious goods and those used by the wealthy should be subject to high taxes within society. Low taxes should be applied to everyday essentials since the poor consume more of them.
3. Spending by the government on initiatives that help low-income populations has to increase. For instance, more money should be spent on social services like public health, education, and so forth, and the impoverished should receive these services for free or at a reduced rate. By improving their effectiveness, these investments will raise the income of the impoverished and so lessen inequality. In a similar vein, spending on social security programmes like pensions, unemployment insurance, and health benefits could go up.
4. The establishment of industries in underdeveloped areas should be funded by the government. Regional inequities will be eliminated as a result. Offering unique tax breaks, such as reduced taxes or tax holidays, might encourage entrepreneurs to establish businesses in underdeveloped areas.