The instrumental harms of inequality: 

The instrumental harms of inequality

Context

From monopolistic market structures to poor public health outcomes, inequality can cause harm in a number of domains of everyday living.

Causes of inequality

The main causes of inequality are:

1. Unemployment

Low la­bour productivity implies low rate of economic growth which is the main cause of poverty and inequality of the large masses of people. In fact, inequality, poverty and unemployment are inter­related. Since sufficient employment could not be created through the process of planned economic development, it was not possible to increase the income levels of most people.

2. Inflation:

During inflation, few profit earners gain and most wage earners lose. This is exactly what has happened in India. Since wages have lagged behind prices, profits have increased. This has cre­ated more and more inequality. Moreover, during inflation, money income increases no doubt but real income falls. And this leads to a fall in the standard of living of the poor people since their purchasing power falls.

3. Tax Evasion:

In India, the personal in­come tax rates are very high. High tax rates en­courage evasion and avoidance and give birth to a parallel economy. This is exactly what has hap­pened in India during the plan period. Here, the unofficial economy is as strong as (if not stronger than) the official economy. High tax rates are re­sponsible for inequality in the distribution of in­come and wealth. This is due to undue concentra­tion of incomes in a few hands caused by large- scale tax evasion.

4. Regressive Tax:

The indirect taxes give maximum revenue to the government. But they are regressive in nature. Such taxes have also cre­ated more and more inequality over the years due to growing dependence of the Government on such taxes.

5. New Agricultural Strategy:

No doubt, India’s new agricultural strategy led to the Green Revolution and raised agricultural productivity. But the benefits of higher productivity were en­joyed mainly by the rich farmers and landowners. At the same time, the economic conditions of lan­dless workers and marginal farmers deteriorated over the years. Most farmers in India could not enjoy the-benefits of higher agricultural produc­tivity. As a result, inequality in the distribution of income in the rural areas has increased.

What are the consequences  of inequality

  1. GDP-Inequality can be harmful for the prospects of an increase in national income. Because the poor spend the bulk of their income on necessities, the marginal propensity to consume out of income is higher for the poor than it is for the rich.
  2. Market-The concentration of wealth and income in the hands of a few is conducive to a market structure that is monopolistic or oligopolistic. Monopolistic pricing, as is well known, is associated with deadweight losses in welfare.
  3. Inequality can interfere with the efficiency of an economy. economists like Hugh Dalton, Tony Atkinson, Serge-Christophe Kolm and Amartya Sen have associated a measure of inequality with the efficiency, or welfare, loss occasioned by inequality.
  4. Inequality is often both the source and the consequence of economic domination by one group of people over another. The theme of inequality and conflict has been well addressed in the works of economists such as Debraj Ray, Joan-Maria Esteban and Anirban Mitra, when they speak of polarization, and of strife organized around religious divisions. The ghettoization of the Muslim community in Gujarat after the events of 2002, and the attempt at nullification of the community’s economic status, is a case in point.
  5. Health-Inequalities of income and wealth have a way of spilling over into other domains, such as health. Economic inequalities are known to have stress and demoralization effects on workers. Inequality can thus dampen productivity, and so earning potential, and so productivity again in a vicious cycle.
  6. Education:The instrumentally positive impact of equality on efficiency is highlighted by a measure of “effective literacy” advanced by the economists Kaushik Basu and James Foster. They postulate that literacy is something like a public good, such that a literate person confers external literacy benefits on other members of her household.
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