(ESSAY) To what extent would different government measures reduce wealth inequality?

Wealth is defined as being a measure of the value of assets owned by individuals, firms or a country. A country’s wealth is more specifically known as being “national wealth”, which is measured by the total monetary value of the capital, goods and services owned by a nation at a particular period of time. The oil reserves held by Middle Eastern nations contribute to their “national wealth” as it’s a good they own which generates injections to the circular flow of income of their economy. The manner in which this wealth is divided amongst the members of the economy is called wealth distribution. Wealth distribution is dependent on factors such as assets owned by firms or acquired skills of individuals. An equal wealth distribution would mean everyone in the country would have exactly the same amount of wealth, with incomes being the same. In the UK economy however it is known that the increase in wealth has led to an increase in wealth inequality with 20% of income earners earning around 51% of total national income and the bottom 20% earning 2.3% of the national income. There are various reasons for wealth inequality in UK. Since 1960s the surge of house prices has been faster than the rate of inflation. Property owners have seen a marked increase in household wealth through rising property prices, which has influenced a gap between property owners and non-property owners. House prices form the main part of people’s wealth. When prices are rising, so does household wealth. This should lead to a rise in consumer confidence and greater willingness to spend on goods and services. An increase in property prices can also receive harmful response which may lead to dampening of the economy. Rising house prices can be good for home owners, but it can reduce the living standards for those who don’t have a house. Individuals may then also have incentives to save more and spend less, or to rent out instead of buying a house. Renting creates problems for the economy too, as the increased demand of apartments is being increased by the supply, has led to the government responding by investing into housing & environment to meet this growing demand. The increased expenditure would therefore result in the increased budget deficit as the investment holds an opportunity cost and may result in increased taxes. So therefore non-property owners are at a disadvantage where by the do not have household wealth. Other reasons for wealth inequality such as “ability to save”, where people on low income rarely have the ability to save as they have very high marginal propensity to consume and increased income inequality are also reasons for wealth inequality in the UK. The question that now arises is to what extent can the government can apply measures and policies to help reduce wealth inequality and make the distribution of income more equal to improve living standards of people that live in the UK and to overall better the economy.

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