Tax reform in Asteria

Read the extracts and answer the questions that follow.

Text A — Changing the tax mix

1. Asteria relies heavily on a broad sales tax. Since low-income households spend a larger proportion of their income, economists describe this tax as regressive relative to income.

2. The government proposes removing the sales tax from basic food and increasing personal income tax on high earners. Revenue would finance housing allowances and public childcare.

Text B — Distribution and incentives

1. Supporters expect the reforms to increase disposable income at the bottom of the distribution and shift the Lorenz curve towards equality. Opponents predict avoidance, lower labour-force participation and reduced entrepreneurship.

2. The childcare programme is intended to reduce gender inequality in employment. A transfer payment would also be paid to low-income tenants facing high urban rents.

Table 1 — Tax burdens

Annual income and sales tax paid by representative households in Asteria.

Table 2 — Disposable income shares

Disposable-income share received by the lowest 40% of households in Asteria.

Poverty after flooding in Pelago

Read the extracts and answer the questions that follow.

Text A — A shock to island households

1. Severe flooding destroyed homes and fishing equipment in Pelago. Many households lost both current income and productive assets, demonstrating the difference between income and wealth.

2. The government reports poverty using an international poverty line adjusted for purchasing power. Local charities argue that a national minimum income standard better reflects Pelago's unusually high transport and housing costs.

Text B — Recovery policies

1. Emergency cash transfers raised consumption, while grants helped fishing families replace boats and equipment. The government is also building flood-resistant housing in the poorest districts.

2. Critics argue that universal reconstruction grants waste resources on wealthy households. Supporters respond that means testing would delay payments and exclude families whose records were destroyed.

Table 1 — Poverty after the flood

Poverty survey results in Pelago after the flood.

Table 2 — Replacement grants

Replacement grant eligibility, amount and receipt rate for fishing households.

Employment discrimination in Darsana

Read the extracts and answer the questions that follow.

Text A — Unequal labour-market outcomes

1. Women in Darsana have similar average qualifications to men but are under-represented in senior occupations. Researchers attribute part of the wage gap to discrimination in recruitment and promotion.

2. The government has introduced transparent pay reporting, equal-pay enforcement and subsidised childcare. It argues that these policies promote equality of opportunity rather than guaranteeing equal outcomes.

Text B — Wider effects

1. Businesses warn that compliance costs may discourage hiring. Supporters argue that using workers according to productivity rather than gender improves resource allocation and raises national output.

2. Persistent exclusion can increase poverty among single-parent households and weaken social stability by reducing trust in institutions.

Table 1 — Hourly earnings

Average hourly earnings in Darsana before and after the policies.

Table 2 — Senior employment

Senior employment in Darsana before and after the policies.

Automation and inequality in Vardos

Read the extracts and answer the questions that follow.

Text A — Technological change

1. Automation has raised productivity in Vardos's logistics sector but reduced demand for routine warehouse labour. Demand has increased for technicians with advanced digital skills, widening differences in human capital and earnings.

2. Displaced workers may experience structural unemployment because their skills do not match available vacancies. The government offers retraining grants and temporary unemployment benefits.

Text B — Distributional effects

1. Shareholders have received higher profits as firms adopt automation. Since financial assets are concentrated among richer households, technological change may increase wealth inequality as well as income inequality.

2. Employers argue that automation reduces prices and creates new occupations. Trade unions seek stronger transfers and a tax on unusually large capital gains to finance lifelong learning.

Table 1 — Employment and training

Employment and training outcomes for displaced warehouse workers in Vardos.

Table 2 — Income distribution

Cumulative income share of the lowest 40% of households in Vardos before and after the programme.

Housing wealth in Elmont

Read the extracts and answer the questions that follow.

Text A — Rising asset values

1. House prices in Elmont have risen much faster than wages. Older homeowners have gained substantial net wealth, while young tenants spend a growing share of income on rent.

2. A household may have low current income but own valuable housing because income is a flow whereas wealth is a stock. The government is considering a recurrent property tax with rebates for low-income homeowners.

Text B — Policy proposals

1. Revenue from the property tax would finance social housing and deposits for first-time buyers. Economists argue that wider asset ownership may reduce insecurity and intergenerational inequality.

2. Opponents claim that the tax would be unfair to asset-rich but cash-poor retirees. Supporters propose allowing deferred payment until a property is sold. The objective is greater equity, not identical asset ownership.

Table 1 — Housing costs

Annual disposable income and housing costs for two households in Elmont.

Table 2 — Wealth distribution

Wealth share of the richest 20% before and after housing policies.

Rural finance in Navira

Read the extracts and answer the questions that follow.

Text A — Unequal access to credit

1. Commercial banks in Navira require land as collateral. Since land ownership is concentrated, many tenant farmers cannot borrow to purchase irrigation equipment or improved seeds. This is an example of inequality of opportunity.

2. Low productivity and unstable income contribute to absolute poverty in rural districts. The government has established a publicly guaranteed microcredit programme for low-income farmers.

Text B — Benefits and risks

1. Access to credit may raise investment, productivity and income. However, crop failures can leave borrowers with debts exceeding the value of their assets.

2. The government is combining credit with agricultural training and weather insurance. Critics question whether subsidised loans are preferable to targeted government spending on irrigation and rural schools.

Table 1 — Microcredit programme

Microcredit programme data in Navira.

Table 2 — Rural poverty

Rural absolute poverty before and after the microcredit programme, with evaluation information.

Measuring poverty in Oranta

Read the extracts and answer the questions that follow.

Text A — Missing households

1. Oranta's household survey excludes many homeless people, undocumented migrants and residents of remote settlements. Informal earnings and income received in kind are also under-reported.

2. The government uses an international poverty line converted using purchasing power parity. City authorities argue that the national result understates urban deprivation because rents are much higher in the capital.

Text B — A new survey

1. Oranta plans to combine income data with indicators of schooling, nutrition, sanitation and housing. A person whose weighted deprivation score reaches the cut-off will be classified as poor using a composite indicator.

2. Improved measurement will be costly, and choices about indicators, weights and thresholds remain normative. Nevertheless, policy makers expect better data to improve the targeting of food and housing assistance.

Table 1 — Survey coverage

Survey coverage and response data for Oranta.

Table 2 — Alternative poverty estimates

Alternative poverty estimates from complete survey responses in Oranta.

Migrant incomes in Calidia

Read the extracts and answer the questions that follow.

Text A — Unequal access to formal work

1. Migrant workers contribute to Calidia's agriculture and construction sectors but often lack recognised qualifications. Some employers pay migrants less than citizens doing similar work.

2. The government proposes recognition of overseas qualifications, language training and stronger equal-pay enforcement. These measures aim to reduce inequality of opportunity and occupational segregation.

Text B — Taxes and benefits

1. Most migrants pay consumption taxes, but undocumented workers cannot claim unemployment benefits. Since low-income households spend a large share of income, indirect taxation may increase their total tax burden.

2. The government is considering a temporary means-tested transfer for low-income households regardless of citizenship status. Critics fear that the policy will be costly and politically unpopular.

Table 1 — Earnings

Average monthly earnings for comparable work in Calidia.

Table 2 — Benefit pilot

Benefit pilot outcomes for eligible low-income households.

Income inequality and taxation in Country A

Country A has experienced economic growth, but its government is concerned that gains from growth have been distributed unevenly. Table 1 shows the shares of market income and disposable income received by each income quintile.

Income shares by household quintile in Country A

Country A uses the personal income tax schedule shown in Table 2.

Annual personal income tax schedule in Country A.

A household with a gross annual income of 70 000 dinars has no deductions or allowances, so its annual taxable income is also 70 000 dinars for the purposes of Table 2. It spends a tax-inclusive amount of 12 000 dinars per year on taxable goods and services; the indirect tax is 20 percent of the pre-tax price. The government is considering making personal income taxation more progressive and using the additional revenue to improve access to education and healthcare.

Poverty measurement in Country B

Country B uses an international poverty line of 2.15 international dollars per person per day. It is also considering a higher national poverty line of 3.65 international dollars per person per day. Table 1 classifies a survey population by daily consumption.

Daily consumption distribution in a 1000-person survey population in Country B.

The government also measures multidimensional poverty. A weighted deprivation score of at least one-third classifies a person as multidimensionally poor. Table 2 presents the results for three population groups.

Multidimensional poverty data by population group, including the number classified as poor.

The survey covers 1000 people. The government is considering a transfer of 60 international dollars per month to every person below the national poverty line. However, remote communities and people without a registered address are often omitted from the household survey.

Low wages and in-work poverty in Country C

Many retail workers in Country C receive a wage of 8 crowns per hour. The government is considering introducing a minimum wage of 10 crowns per hour. Figure 1 presents estimated weekly labour demand and labour supply in the covered retail labour market.

Before the intervention, 60 000 workers are employed. At the proposed minimum wage, firms would demand 50 000 workers while 75 000 workers would be willing to work. A worker who remains employed earns 26 000 crowns per year. The personal income tax schedule is shown in Table 1.

Annual personal income tax schedule in Country C.

The worker also spends 6240 crowns per year, including a 20% indirect tax, on taxable goods. Some retail workers are self-employed or work informally and would not be covered by the minimum wage.

Wealth inequality in Country D

House prices and financial-asset values have increased rapidly in Country D. Table 1 compares the distribution of annual income with the distribution of net wealth. Net wealth is measured as assets minus liabilities. For each measure, households are ranked separately from lowest to highest according to that measure and divided into five equally sized quintiles. Thus, the annual-income shares and net-wealth shares in Table 1 refer to their respective rankings.

Quintile shares; households are ranked separately from lowest to highest for annual income and net wealth.

The government is considering an inheritance tax. Under the proposal, the first 400 000 pesos of an estate would be exempt, the next 600 000 pesos would be taxed at 15%, and the remaining taxable value would be taxed at 30%.

Country D also imposes a 25% indirect tax. A low-income household earns 20 000 pesos and spends 15 000 pesos including indirect tax. A high-income household earns 100 000 pesos and spends 30 000 pesos including indirect tax.

Human capital, discrimination and inequality in Country F

Automation and international competition have reduced demand for routine labour in Country F. Workers from low-income households have limited access to vocational training, and women remain under-represented in higher-paid occupations.

Table 1 shows household income shares before and after a pilot programme combining vocational education, childcare and enforcement of equal-pay legislation.

Household income shares by quintile before and after the pilot programme.

The government trained 50 000 unemployed people at an annual cost of 2400 solars per participant. The employment rate among participants increased from 52% to 68%. Each additional employed participant earns an average of 18 000 solars per year and pays 10% of this income in personal income tax.

Table 2 provides additional labour-market and poverty data.

Labour-market and poverty indicators in Country F

Ageing and pension poverty in Torvia

Read the extracts and answer the questions that follow.

Text A — Unequal retirement security

1. Torvia's contributory pension system provides high benefits to workers with continuous formal employment. People who spent years in unpaid care or informal work often receive very low pensions.

2. Many low-income retirees own no financial assets and are vulnerable to rent and food-price increases. The government proposes a universal basic pension, which is a form of universal basic income restricted to people above retirement age.

Text B — Financing reform

1. The pension would be financed through progressive personal income taxation and reduced tax concessions on private pensions. Supporters expect lower absolute poverty and greater security.

2. Critics argue that wealthy retirees do not need the payment and that population ageing will raise its fiscal cost. A means-tested pension would be cheaper, but complex applications may cause non-take-up and stigma.

Table 1 — Pension poverty

Pension poverty among retirees in Torvia before and after a universal pension.

Table 2 — Fiscal cost

Fiscal information for the proposed universal basic pension, including the stated offset from recovered tax concessions.

A universal basic income in Country E

Country E is considering a universal basic income (UBI) of 600 florins per month for each of its 8 million adults. Existing means-tested benefits costing 18 billion florins per year would be abolished, and the government expects to save 1.2 billion florins in annual administration costs.

Median annual disposable income is 30 000 florins. Country E defines relative poverty as income below 60% of median disposable income. Table 1 shows the distribution of adults around the relative-poverty threshold before the UBI. Assume that the UBI raises every adult's annual income by 7200 florins and that the median and poverty threshold remain unchanged.

Distribution of adults by annual disposable income before the UBI.

To help finance the UBI, the government proposes the additional personal income levy shown in Table 2.

Proposed marginal additional personal income levy; the UBI is excluded from the levy base. Band populations are not provided, so total levy revenue cannot be calculated.

An adult earning 90 000 florins also spends 24 000 florins, including a 20% indirect tax, on taxable goods and services.