Explain the need for reduction in inequalities of income and wealth. Explain any two budgetary measures by which it can be done.

Reducing inequality and poverty and promoting equity are important macroeconomic objectives. The widening income gap between the rich and poor has highlighted the need to understand the causes relative inequality and poverty and to construct suitable policies to reduce poverty and the income gap narrow.

The budgetary measures by which it can be reduced are:

(i) Progressive taxation.

(ii) Increasing governments expenditure.

(i) Progressive Taxation: Government can intervene to promote equity and reduce inequality and poverty, through the tax and benefits systems, progressive tax system means more tax from those on higher levels of income and redistributes welfare benefits to those on lower incomes.

(ii) Increasing Governments Expenditure: Government increase its expenditure by spending on development projects like on health and education. By doing this, the government reduces the gap between rich and poor.