Which one of the following can be concluded from the data in Table 1 regarding the distribution of income between the top and bottom quintile of households?
| Income stage / policy | Income of top quintile (£) | Income of bottom quintile (£) | Ratio of top to bottom quintile |
|---|---|---|---|
| Original income | 150,000 | 10,000 | 15.0 |
| plus cash benefits | 2,000 | 10,000 | 0.2 |
| Gross income | 152,000 | 20,000 | 7.6 |
| less direct taxes | 42,000 | 2,000 | 21.0 |
| Disposable income | 110,000 | 18,000 | 6.1 |
| less indirect taxes | 10,000 | 6,000 | 1.7 |
| Post-tax income | 100,000 | 12,000 | 8.3 |
Cash benefits were more effective than direct taxes in reducing the income ratio between the top and bottom quintiles.
Indirect taxes reduced the inequality of the disposable income distribution because the top quintile paid a higher absolute amount (£10,000£10,000£10,000) than the bottom quintile (£6,000£6,000£6,000).
Direct taxes increased the ratio of the top-to-bottom quintile income, worsening inequality.
The combined impact of cash benefits, direct taxes, and indirect taxes resulted in a more unequal distribution of post-tax income compared to original income.
76 exam-style questions on AQA A Level Economics 1.7 The distribution of income and wealth: poverty and inequality (A-level only), covering 1.7.1 The distribution of income and wealth, 1.7.2 The problem of poverty, and 1.7.3 Government policies to alleviate poverty and to influence the distribution of income and wealth. Each one has a worked solution and a mark scheme showing where the marks go.