Negative income tax in alleviating poverty and economic inequality

ABSTRACT NEGATIVE INCOME TAX IN ALLEVIATING POVERTY AND ECONOMIC INEQUALITY Although income distribution is an economic issue people concern much about, it did not take its fair share in the agenda of academic researches. This public interest is both in lower and upper income groups. Meanwhile individuals struggle for higher positions in income scale. This contention is inherent, however, there must be no such great inequalities or so much poverty that the contention turns into a fight and disorder. Negative income tax seems to be a means having the potential to meet the latter condition, i.e. a lower rate of and nonintensive poverty. States employ such measures as taxes and public expenditures in reshaping the income distribution which have only little efficiency to reach the desired distributional goal and also distorting effects in economy. At this point negative income tax comes up to be an appropriate tool both having little sideeffects and being applicable in any developed or developing country. In the first chapter of our study we discussed the issues relating the describtion and measurement of inequality and poverty. Later, in chapter two we mentioned some concepts like equity and welfare state which build up the basis of policies against poverty and inequality. The negative income tax and its alternatives are examined in chapter three. And the last chapter is reserved for the application of our theoretical discussions in case of Turkey where we put light on the income distribution in 1994 and evaluated the inequality and poverty criteria for that year. Later again in this chapter we tried to make some calculations by employing a Friedman type negative income tax with 50% marginal tax rate and investigated whether it be a favourable means in alleviating inequality and poverty with a reasonable cost. IV