Normative economics financial definition of normative economics
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normative economics the study of what ‘ought to be’ in economics rather than what ‘is’. For example, the statement that ‘people who earn high incomes ought to pay more income tax than people who earn low incomes’ is a normative statement. Normative statements reflect people's subjective value judgements of what is good or bad and depend on ethical considerations such as ‘fairness’ rather than strict economic rationale. The actual economic effects of a taxation structure that taxes the rich more heavily than the poor (on spending and saving, for example) is a matter for POSITIVE ECONOMICS. See WELFARE ECONOMICS.