poverty trap

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Poverty Trap

An obstacle or disincentive for a person to work to raise himself/herself out of poverty. For example, an increase in income from a job may reduce the welfare benefits for which one is eligible. Likewise, a lack of affordable educational opportunities may prevent one from acquiring skills necessary to earn more money.

poverty trap

a situation where an unemployed person receiving SOCIAL SECURITY BENEFITS is not encouraged to seek work because his or her aftertax earnings potential in work is less than the benefits currently obtained by not working. Given that social security benefits represent the ‘bottom line’ (that is, the provision of some socially and politically ‘acceptable’ minimum standard of living), the problem is how to reconcile this with the ‘work ethic’. One suggested way is for government to provide employers with employment subsidies that allow them to pay wages higher than the minimum level of social security, even though the MARGINAL REVENUE PRODUCT ofthe work undertaken does not warrant it. It will thus be to people's economic advantage to obtain employment, and in so doing it is hoped they will acquire work experience and skills that will improve their long-run earnings potential.

Alternatively, the overlap between entitlement to social security benefits (based on one set of income scales) and the threshold level of income at which people start to pay tax (based on a different set of income scales) can be removed by the introduction of a NEGATIVE INCOME TAX. A negative income tax system replaces means-tested social security benefits on the one hand, and PROGRESSIVE TAXES on the other, with a single unitary tax system. Under this unitary tax system, people pay taxes when they are in employment and earning more than a stipulated minimum income and receive a tax rebate to bring their income up to the stipulated minimum level when they are either unemployed or earning less than the minimum. See alsoSUPPLY-SIDE ECONOMICS.

References in periodicals archive ?
eta])*], cannot be helped with respect to ruin probability by introducing an insurance system because they find themselves already in the poverty trap.
Such individuals might take chances when a safe strategy is unlikely to break them out of a poverty trap and financial market failures preclude a more conventional investment-based strategy for accumulating capital and exiting poverty.
The authors of the study discovered voting helped small economies avoid the poverty trap.
Sachs argues that we really haven't given that much--certainly not enough to bring about that critical mass that Africa needs to pull itself out of the poverty trap.
One byproduct of breaking out of the poverty trap could be freer societies, as "wealth seems to promote the proper conditions for democracy to develop," Wacziarg concludes.
The poverty trap created by means-tested child benefits only institutionalises the poverty trap inherent in a society based on the exploitation of wage labour.
Elaborado para el Workshop on Poverty Traps, Santa Fe Institute.
In the last 10 years there has been mounting action in Brazil to lift young people out of the poverty trap and enable them to receive a university education.
The association believes that job-creation is not sufficient in itself to combat the phenomenon: certain jobs are poorly paid and do not allow people to escape from social exclusion and the poverty trap.
The prime minister was briefed about the graduation strategy that was being formulated with an aim to permanently extract BISP beneficiaries from poverty trap through increasing their household income, enhancement of skills and human capital and promote long term welfare.
For if you are caught in the poverty trap (and it absolutely exists, including for working families) the children are the most vulnerable.

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