Explain how economic growth might reduce the level of absolute poverty in a country.

Evaluate the view that progressive income tax is the best way to increase equity in an economy.

PLEASE NOTE: This question part is not on the syllabus for first teaching 2020/first exams 2022.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definitions of economic growth, absolute poverty
• diagram to show how economic growth leads to a rise in income which could reduce poverty
• explanation of how economic growth might lead to a rise in household income, which reduces absolute poverty
• examples of countries where economic growth has reduced absolute poverty.

NB Where a money value is given for absolute poverty there is flexibility on the value. Anything around $2 a day is acceptable.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.

Answers may include:

• definitions of progressive income tax, equity
• diagram to show the impact of progressive income tax on equity
• explanation of how progressive income tax increases equity by taxing high-income people at a higher rate, which provides more funds for public services that can increase equity, such as education and healthcare
• examples of progressive taxation to increase equity
• synthesis or evaluation.

Evaluation may include: consideration of the problems of applying progressive taxation if high-income people avoid paying or people do not expand their businesses and how this can reduce opportunities for people of low incomes. Answers might also include consideration of alternative policies to increase equity such as increased transfer payments and improvements to the functioning of the labour market.

A maximum of [12] should be awarded if a candidate has not considered an alternative policy.

This question was generally well answered by students who showed a clear understanding of the relationship between economic growth and absolute poverty. The strongest answers explained how rising incomes and employment that result from economic growth reduce poverty levels as households are better able to afford the goods and services needed to support a basic standard of living. It was good to see some well-developed real-world examples from ELDCs to support this.

This question proved to be challenging for students. Progressive income tax was quite well understood by students, but many struggled to clearly make the connection to equity. The strongest responses explained how progressive tax means the richest in society make the biggest contribution to government tax revenue and the revenue raised can be used to improve opportunities for the households on the lowest incomes. The best students evaluated their argument by considering the impact progressive taxation might have on the motivation of high-income individuals and how some individuals might try to avoid high taxes.