Pearson Edexcel · A-Level · Economics B

    Course version: 9EB0 · Version from Sept 2015

    C) Taxation and the provision of services

    Full specification wording

    Re-distribution of income and wealth: c) Taxation and the provision of services

    Governments use taxation and the provision of services to redistribute income and wealth, reducing inequality.

    Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .

    • Point 3 of 3
    • 4 key terms

    Study notes

    From the checked teaching notes for this specification point.

    The idea

    Governments use taxation and the provision of services to redistribute income and wealth, reducing inequality. Progressive taxation, such as income tax where higher earners pay a larger percentage of their income, directly reduces the post-tax income gap. The revenue generated funds essential services like state education, healthcare, and subsidised social housing. By providing services like healthcare free at the point of use, or housing at below-market rents, the government effectively increases the real income of lower-income households who would otherwise struggle to afford them.

    For example: Funding the NHS ensures that healthcare access is not determined by wealth, narrowing the gap in living standards.

    What earns the marks

    • Identify progressive taxation as a mechanism that takes a larger proportion of income from high earners to reduce income inequality.
    • Explain how government revenue is used to fund public and merit goods, such as healthcare and education.
    • Evaluate the impact of providing state services on the real income and living standards of low-income households.
    • Analyse the potential disincentive effects of high marginal tax rates on labour supply and enterprise.

    Common mistakes and how to put them right

    • Confusing income and wealth.

      Put it right: Income is a flow of money over time, whereas wealth is a stock of assets at a given point in time.

    • Assuming all taxes are progressive.

      Put it right: Indirect taxes like VAT are regressive and can widen income inequality.

    • Stating that providing services redistributes wealth directly.

      Put it right: It primarily redistributes real income and living standards, though it can affect wealth accumulation over generations.

    Exam tips

    • Always distinguish between income inequality and wealth inequality when evaluating government policies.
    • Use specific examples of progressive taxes and state-provided services to support your analysis of redistribution.
    • Consider the macroeconomic trade-offs, such as the potential negative impact of high taxation on economic growth.

    Try the lesson

    The start of the Re-distribution of income and wealth: c) Taxation and the provision of services lesson, made from checked teaching notes for this specification point.

    Have a go first

    How does the combination of progressive taxation and the state provision of public services typically affect the distribution of income?

    Listen

    Governments use taxation and the provision of services to redistribute income and wealth, reducing inequality. Progressive taxation, such as income tax where higher earners pay a larger percentage of their income, directly reduces the post-tax income gap. The revenue generated funds essential services like state education, healthcare, and subsidised social housing. By providing services like healthcare free at the point of use, or housing at below-market rents, the government effectively increases the real income of lower-income households who would otherwise struggle to afford them. For example, funding the NHS ensures that healthcare access is not determined by wealth, narrowing the gap in living standards. A strong answer earns marks for these points. Identify progressive taxation as a mechanism that takes a larger proportion of income from high earners to reduce income inequality. Explain how government revenue is used to fund public and merit goods, such as healthcare and education. Evaluate the impact of providing state services on the real income and living standards of low-income households. Analyse the potential disincentive effects of high marginal tax rates on labour supply and enterprise. A common slip: Confusing income and wealth. Instead, income is a flow of money over time, whereas wealth is a stock of assets at a given point in time. Exam tip: Always distinguish between income inequality and wealth inequality when evaluating government policies.

    See it

    A top-down flowchart. At the top, a node labelled 'Progressive taxation' splits into two branches. The left branch leads to 'Higher earners pay a larger percentage of income', which leads to 'Reduces the post-tax income gap'. The right branch leads to 'Government revenue', which leads to 'Funding of services: state education, healthcare, subsidised social housing', then to 'Services free at the point of use or below-market rents', then to 'Increases real income of lower-income households', then to 'Narrows the gap in living standards'. The 'Reduces the post-tax income gap' node also points to 'Narrows the gap in living standards', so both branches converge on that final outcome.
    This shows how progressive taxation and the state provision of services work together to reduce inequality and narrow the gap in living standards.

    Key words

    Say what each word means before you turn the card.

    Income inequality

    Try answering aloud or in your head before turning the card.

    Wealth distribution

    Try answering aloud or in your head before turning the card.

    Progressive taxation

    Try answering aloud or in your head before turning the card.

    Government intervention

    Try answering aloud or in your head before turning the card.

    See every definition
    Income inequality
    A flow of money over time that is unevenly spread, which progressive taxation can reduce by taking a larger proportion from high earners.
    Wealth distribution
    A stock of assets at a given point in time, which state services primarily affect only indirectly through real income and living standards.
    Progressive taxation
    A mechanism such as income tax where higher earners pay a larger percentage of their income, directly reducing the post-tax income gap.
    Government intervention
    The use of taxation and the provision of services to redistribute income and wealth, reducing inequality.

    Label the diagram

    Some boxes have lost their names. Pick the right name for each number.

    The diagram again, with 3 boxes numbered instead of named. A top-down flowchart. At the top, a node labelled 'Progressive taxation' splits into two branches. The left branch leads to 'Higher earners pay a larger percentage of income', which leads to 'Reduces the post-tax income gap'. The right branch leads to 'Government revenue', which leads to 'Funding of services: state education, healthcare, subsidised social housing', then to 'Services free at the point of use or below-market rents', then to 'Increases real income of lower-income households', then to 'Narrows the gap in living standards'. The 'Reduces the post-tax income gap' node also points to 'Narrows the gap in living standards', so both branches converge on that final outcome.
    • 1Box 1

    • 2Box 2

    • 3Box 3

    0 of 3 labelled

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