How do government policies influence the level of inequality in the distribution of income and wealth?

Inequality is a natural consequence of the free market functioning effectively though the government both directly and indirectly influences the extent of inequality through its policies it puts together such as through macroeconomic policies, low income earner benefit policies and microeconomic reforms.

Fiscal and income policies generally have the most direct impact on inequality through changing the levels of welfare benefits, tax, government charges and wages and salaries. The recent push to achieve fiscal balance has meant the reduction of these expenditures on welfare and government benefits and services such as labour market programs, which adversely affects lower income earners.

Despite the government using monetary policy to slow the rate of economic growth, it can distort the distribution of income and ...