[alex_hk90]

(Original post by Moiraclaire)
Intersting little PROBLEM - please help

Had this debate in class today. To do with income inequality.

Would changing the 40% marginal tax rate from being applied to income over £45K to incoem over £43K widen or narrow inequality ?
Ceteris paribus, all gross incoems remaining constant.

I would have thought inequality would definitely decrease because your bringing the net incomes of everyone earning over £43,000 down?
However people would argueing that it would depend on how many people were at either end of the income scale

How would it change the lorenz curve also ?

Well, ceteris paribus, the direct effect would be to decrease the disposable income of those earning above £43,000, and hence decrease income inequality because £43,000 is above the average (both median and mean) income level (i.e. people who had above average income now have less than they did before). It would have no direct effect on those earning below £43,000. However, it is arguable that there are indirect effects via, for instance, changes in consumption - those earning above £43,000 tend to have higher marginal propensity to spend, so they will reduce spending disproportionately, lowering aggregate demand and perhaps even causing a rise in unemployment (which tends to increase income inequality). There may also be other indirect effects like tax avoidance which might need to be considered. In short, I agree with you on the direct effect but things aren't ceteris paribus in reality.

[Moiraclaire]

(Original post by alex_hk90)
Well, ceteris paribus, the direct effect would be to decrease the disposable income of those earning above £43,000, and hence decrease income inequality because £43,000 is above the average (both median and mean) income level (i.e. people who had above average income now have less than they did before). It would have no direct effect on those earning below £43,000. However, it is arguable that there are indirect effects via, for instance, changes in consumption - those earning above £43,000 tend to have higher marginal propensity to spend, so they will reduce spending disproportionately, lowering aggregate demand and perhaps even causing a rise in unemployment (which tends to increase income inequality). There may also be other indirect effects like tax avoidance which might need to be considered. In short, I agree with you on the direct effect but things aren't ceteris paribus in reality.

I swear high earners have a lower marginal propensity to spend - because they can afford to save unlike those on low incomes ? so if there was this tax change. But it would cut AD (ceteris paribus) unless benefits to those poor with higher marginal propensity to consume were simultaneously increased.

[alex_hk90]

(Original post by Moiraclaire)
I swear high earners have a lower marginal propensity to spend - because they can afford to save unlike those on low incomes ? so if there was this tax change. But it would cut AD (ceteris paribus) unless benefits to those poor with higher marginal propensity to consume were simultaneously increased.

You might be right, it's a long time (something like 5 years) since I last looked at this but for some reason I had the idea that spending on luxury goods was more sensitive to income changes, and this was due to higher earners. Anything beyond the direct effects can usually be argued either way.

[andyrichards]

Hi guys, thought you might be able to help me with this one:

How can government policy be used to change Britain's high spending, low saving consumer culture?

Thanks

[alex_hk90]

(Original post by andyrichards)
Hi guys, thought you might be able to help me with this one:

How can government policy be used to change Britain's high spending, low saving consumer culture?

Thanks

Tax incentives would be an obvious starting point here (both to reduce spending and to increase saving).

[andyrichards]

I would be really grateful if you could take a look at my economics blog at: http://thinkaboutecon.blogspot.co.uk/
I also encourage you to comment!

[Brand New Eyes]

For anyone who's shunning revision in need of some useful procrastination

http://www.sporcle.com/search/?p=1&s=economics

my personal favourite http://www.sporcle.com/games/DeaconE...ous_economists (because its short)

At least 46 more days till day freedom day :/

[Brand New Eyes]

(Original post by andyrichards)
I would be really grateful if you could take a look at my economics blog at: http://thinkaboutecon.blogspot.co.uk/
I also encourage you to comment!

Concerning the hose pipe ban, I heard a funny anecdote on Russell Howard the other day.

Protip to get around it: Set fire to your shed. Firemen arrive. Shrubbery may get some of the surplus splash-age. Looks like a foolproof plan.

I agree about implementing universal water meters, I always thought they were pretty much everywhere. Maybe I just live in a southern bubble :/ hmm

On your most recent post:

Banks are being forced to ring-fence their retail arms here at least through the recommendations by the Vicker's Report. The only problem is that its coming into force in 2019. In Europe, doing so would make borrowing even more expensive and pose risk to already temperamental growth and employment levels. Dealing with the structural problems of the finance sector can only come later, once their economies have recovered. Pulling the plug on bailouts or subsidies as you mention now is the worser evil.

It's easy to say doing X and Y will solve these problems but we reach an international consensus on financial regulation nothing is going to change.

On a side note, has anyone seen this

[andyrichards]

(Original post by Brand New Eyes)
On your most recent post:

Banks are being forced to ring-fence their retail arms here at least through the recommendations by the Vicker's Report. The only problem is that its coming into force in 2019. In Europe, doing so would make borrowing even more expensive and pose risk to already temperamental growth and employment levels. Dealing with the structural problems of the finance sector can only come later, once their economies have recovered. Pulling the plug on bailouts or subsidies as you mention now is the worser evil.

It's easy to say doing X and Y will solve these problems but we reach an international consensus on financial regulation nothing is going to change.

I was unaware that it was only being introduced in 2019. But I imagine it is a very complex process, which, if rushed, could could large fluctuations in credit available which would cause all kinds of problems. Well hopefully by 2019 economic growth throughout Europe will have picked up, but your point is true, it should be implemented at a time when an immediate increase in commercial and corporate borrowing rates can be weathered by the economy. However, you could argue that once the retail sectors of banks are ring-fenced, their corporate arms are no longer protected by the government, so cities such as London, may become less profitable of a location for financial services firms than before, causing them to move overseas. This could cause more economic damage than the cost of bailing out all of our banks combined.

[alex_hk90]

(Original post by Brand New Eyes)
On a side note, has anyone seen this

That had very little substance. Also it's self-contradictory and illogical to say that "risky mortgages push up house prices beyond the reach of ordinary people" when the risky mortgages are what allowed many 'ordinary people' to purchase houses they could never really afford.

[xxm]

http://www.youtube.com/watch?v=0CjNlyiDAno Is that all i need to learn for fiscal policy?
PS Unit 2.

[Brand New Eyes]

(Original post by andyrichards)
I was unaware that it was only being introduced in 2019. But I imagine it is a very complex process, which, if rushed, could could large fluctuations in credit available which would cause all kinds of problems. Well hopefully by 2019 economic growth throughout Europe will have picked up, but your point is true, it should be implemented at a time when an immediate increase in commercial and corporate borrowing rates can be weathered by the economy. However, you could argue that once the retail sectors of banks are ring-fenced, their corporate arms are no longer protected by the government, so cities such as London, may become less profitable of a location for financial services firms than before, causing them to move overseas. This could cause more economic damage than the cost of bailing out all of our banks combined.

I'm glad you agree. It's already causing problems in America with the Dodd-Frank Act which is costing firms up to $100,000 just to fill out the form or something iirc.

On another note, I really hope the Amazon tax goes through, it actually makes me angry. Tax loopholes

(Original post by alex_hk90)
That had very little substance. Also it's self-contradictory and illogical to say that "risky mortgages push up house prices beyond the reach of ordinary people" when the risky mortgages are what allowed many 'ordinary people' to purchase houses they could never really afford.

It is rather over-dramatised but you cant deny that at least before 2008 banks created money in the respect that more money was lent out than deposits existed. Correct me if I'm wrong :/

Has China unblocked youtube? hallelujah.

(Original post by xxm)
http://www.youtube.com/watch?v=0CjNlyiDAno Is that all i need to learn for fiscal policy?
PS Unit 2.

In general or for a specific question? If it's for an essay I'd say the thing it lacks in are the problems/limitations of F.P. like time lag, opportunity cost etc. but as far as explaining fiscal policy and how it works it's pretty much dead on.

[xxm]

(Original post by Brand New Eyes)
I'm glad you agree. It's already causing problems in America with the Dodd-Frank Act which is costing firms up to $100,000 just to fill out the form or something iirc.

On another note, I really hope the Amazon tax goes through, it actually makes me angry. Tax loopholes




It is rather over-dramatised but you cant deny that at least before 2008 banks created money in the respect that more money was lent out than deposits existed. Correct me if I'm wrong :/

Has China unblocked youtube? hallelujah.




In general or for a specific question? If it's for an essay I'd say the thing it lacks in are the problems/limitations of F.P. like time lag, opportunity cost etc. but as far as explaining fiscal policy and how it works it's pretty much dead on.

I'm not sure would it be enough for unit 2 module? I wasn't aware it would be in the essay section.

[Brand New Eyes]

(Original post by xxm)
I'm not sure would it be enough for unit 2 module? I wasn't aware it would be in the essay section.

What board are you on? AS Level right?

The essay section can be on any part of the course so... not sure where you heard that o.O

[xxm]

(Original post by Brand New Eyes)
What board are you on? AS Level right?

The essay section can be on any part of the course so... not sure where you heard that o.O

AS, AQA. Oh really? I just presumed because, no question had come up before on it ( well papers we've done) that it wasn't on it.

[Brand New Eyes]

http://www.economist.com/blogs/graph...un-place-names

(Original post by xxm)
AS, AQA. Oh really? I just presumed because, no question had come up before on it ( well papers we've done) that it wasn't on it.

I'm on OCR so erm I'd ask on the exam thread (I'm sure there is one just search for it)

[alex_hk90]

(Original post by Brand New Eyes)
It is rather over-dramatised but you cant deny that at least before 2008 banks created money in the respect that more money was lent out than deposits existed. Correct me if I'm wrong :/

Has China unblocked youtube? hallelujah.

More money is always lent out than deposits exists, but that's been happening for ages (if I remember correctly it's called the money multiplier) - it's not specific to the 2008 crisis.

And unfortunately not, I have to use a VPN to visit YouTube, Facebook, Twitter, etc.

[farah896]

add me please

[alex_hk90]

(Original post by farah896)
add me please

You can request to be added by going to "Community - Social Groups" and finding this society in the list.

[PTK]

Another resource is the Royal Economic Society. www.res.org.uk