Microeconomics › Section O · Poverty and economic inequality › Topic O.2
The poverty trap
A programme that gives help to people with low incomes must take that help back as their incomes rise. How fast it takes it back decides whether an extra hour of work pays, and badly designed programmes can leave a family no better off for working at all.
In this topic
- Help that takes itself back
- The work-leisure budget line
- Benefit reduction rates
- Worked example: a 100% reduction rate
- Why the trap is deeper in practice
- Worked example: a 40% reduction rate
- The design trade-off
- Stacked programmes and benefit cliffs
- Worked example: falling off a cliff
- Common mistakes to avoid
- Key takeaways
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