Empirical Project 12 Government policies and popularity: Hong Kong cash handout
Learning objectives
In this project you will:
- draw Lorenz curves and calculate Gini coefficients (Part 12.1)
- assess the effect of a policy on income inequality (Part 12.1) and government popularity (Part 12.2)
- convert nominal values to real values (extension) (Part 12.1).
Key concepts
- Concepts needed for this project: percentile, Gini coefficient, and Lorenz curve.
- Concepts introduced in this project: nominal and real values.
Note
Inequality, Lorenz curves, and Gini coefficients are discussed in more detail in Project 5.
Introduction
Core Economics website projects
This empirical project is related to material in:
An important role of the government is to use tax revenue to provide goods and services for its citizens. When governments have an unanticipated budget surplus (taxes exceed government spending and interest payments on government debt), they may choose to increase spending on public infrastructure programs or improve the publicly funded goods and services provided to their citizens.
An alternative way to handle a budget surplus is to simply make a payment to citizens. While this policy may seem unconventional, it is exactly what the Hong Kong Government did in 2011. In every year from 2004 to 2010, the Hong Kong Government had a budget surplus, so they decided to distribute part of this surplus to the public by giving a one-off payment of $6,000 HKD (approximately 770 USD) to every citizen aged 18 or above, irrespective of need. This program, known as Scheme $6,000, was announced at the start of 2011, and after a year-long registration process, transfers were made to citizens’ bank accounts in 2012. You can read a brief summary of Scheme $6,000 in the article ‘Government to start next phase of Scheme $6,000’. While it may seem odd that citizens would fail to claim a handout from the government that is granted to all, 120,000 residents (around 2% of all eligible residents) did not register to receive the handout.
Various arguments were raised against using the scheme, including its failure to address income inequality effectively. We will assess the effects that this policy could have on inequality, and discuss some reasons why governments may choose this policy over other redistributive policies.
