Income redistribution is the policy of government to create balance in income level through taxation. This Government policy is to redirect the income from the target population. The low-income earners paid less amount of tax and high-income earners paid high amount of tax.
Income redistribution is designed by the Government to transfer the income from richer citizen to poorer citizen. This distribution or transfer can be direct or indirect. The supporters of income redistributions argue that income redistribution endorse the development of egalitarian society and also solves the problems that are occurs in the society due to poverty. All governments around the world practice different forms of income redistribution.
Taxation:
Taxation is base of income redistribution. Tax is a charge from government on the population on their goods, incomes etc. There are two major types of taxes.
Direct taxes
Indirect taxes
Direct taxes:
Direct taxes are those taxes which are directly paid to the government by the population. Direct taxes cannot be avoided legally. Every individual who is supposed to pay the tax has to follow the rule. Direct taxes are the taxes that are imposed on the business and corporate sector.
Indirect taxes:
Indirect taxes are those taxes that are imposed on the goods or products in the market. Consumers are bound to pay the tax along with the price of the product. These are called indirect taxes because they are included in the price of product or good. It is very important to understand the difference between income redistribution and redistribution of wealth.
In income redistribution Government do not take assets or property from the people and the people who are wealthier or economically powerful are not penalized. But, redistribution of wealth is a way more extreme practice. In redistribution of wealth government take the assets and property from the people and distribute these assets and property to the other members of the society.
Progressive taxes:
Progressive tax system is one of the standard forms of income redistribution. In this form of income redistribution people pays different rates of tax according to their incomes. People with high incomes pay high taxes under the progressive system. These taxes are used to provide social services to the people.
Government use taxes for the betterment of the poor people of the society and give them social and public services to improve their standard of life. Sometimes these taxes are distributed directly in the society. Direct income transfer happens when government pay the cash directly under some welfare programs. This cash is directly paid to the poor people of society to help them.
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Source: http://en.docsity.com/news/economics/role-income-redistribution-economic-policy-nation/
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