Policies to Alleviate Poverty (Cambridge International IGCSE Economics)
Policies used to help reduce poverty
Spec point — "• promoting economic growth • improved education • improved healthcare provision • more generous state benefits • progressive taxation • national minimum wage (NMW)"
Policies used to help reduce poverty
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The poverty cycle diagram (below) was introduced in the previous subtopic and helps to explain the causes of poverty
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Any policy that helps to break the poverty cycle at any point will help to improve the standards of living within a country
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Policies used to alleviate poverty include:
- promoting economic growth
- improving education
- improved healthcare provision
- providing more generous state benefits
- progressive taxation
- the establishment/increase of a national minimum wage
Policies which help to improve any factor in the diagram will help to alleviate poverty
How different policies reduce poverty
| Policy | Explanation | Impact on poverty cycle |
|---|---|---|
| Promoting economic growth | - Removing protectionism or engaging in expansionary demand and supply-side policies will promote growth - Data shows that economic growth has a very positive impact on economic development - In most cases growth precedes development - Often in less developed countries, economic growth is linked to one industry and generates many negative externalities of production possibly resulting in decreased living standards | - Higher growth → higher wages → better education/healthcare → better human capital → better productivity → higher income |
| Improving education | - Investing in this supply-side policy increases the potential output of the country (shifts the production possibility frontier outwards) | - Higher education/skill levels → higher human capital → increased productivity → higher output → higher income |
| Improved healthcare provision | - Investing in this supply-side policy increases the potential output of the country (shifts the production possibility frontier outwards) | - Healthier workers → fewer sick days → higher productivity → more consistent output |
| More generous state benefits | - State benefits are usually given to the poorest and most vulnerable people in society - State benefits include unemployment and disability payments, pension payments, heating discounts, public transport subsidies etc | - More benefits → higher wages → better education/healthcare → better human capital → better productivity → higher wages |
| Progressive taxation | - A progressive tax system redistributes from those with higher income to those with lower income and reduces income inequality - Redistribution often starts with the provision of free education and healthcare - Sometimes the benefits of a good progressive tax system are eradicated by the penalties imposed through multiple regressive (indirect) taxes | - Higher redistribution → better education/healthcare→ better human capital → better productivity → higher income |
| Establishment/increase of national minimum wage | - Minimum wages are set above the free market rate - Firms are not allowed to pay anyone less than the legal rate | - Higher wages → better education/healthcare → better human capital → better productivity → higher wages |
Exam Hint The best policy to reduce poverty depends on the country’s situation. For example, in a low-income country, improving access to education, healthcare or clean water may be more effective than introducing new tax credits.
In contrast, a high-income country might focus on welfare payments, progressive taxes, or minimum wage laws to support those on low incomes. Always think about the country’s level of development and main causes of poverty when recommending a policy
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