An Overview of the Redistribution of Income
This post will help you to further your understanding of the redistribution of income through taxation and government spending, as part of your Prelim Economics course. In Australia, we have many progressive, regressive and proportional taxes, along with social welfare payments, that act as our redistributive mechanisms.
- Progressive taxes charge lower rates for lower-income earners and higher rates for higher-income earners. An example of this is the Australian Progressive Income Tax System.
- Regressive taxes are applied universally, taking a larger percentage of income from lower-income earners than from high-income earners. An example of this is the Australian Goods and Services Tax (GST).
- Proportional taxes require the same percentage of tax from all taxpayers, despite their income levels.
Revenue gained from these taxes is usually redistributed in the form of social welfare payments to lower-income earners, in an attempt to improve the equitable distribution of income in Australia.
The video below explains the redistribution of income through taxation and government spending in more detail.
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