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A-Level Economics · Lorenz curve diagram question

Progressive income tax funds transfer payments — the Robin Hood move. What does that do to the Lorenz curve?

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The diagram

The answer

Pulls it inward, towards the line of perfect equality, so the Gini coefficient falls towards 0. Chain it: progressive rates → disposable income of the rich falls → the revenue funds transfers → incomes at the bottom rise → the distribution narrows → the curve moves in → Gini towards 0. Every redistributive policy does the same thing on this diagram: it pulls the Lorenz curve IN towards the line, so the Gini moves towards zero. Cut benefits and the curve moves back OUT and the Gini moves towards one. That single lens organises the whole essay.

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This is one of 6 questions on the lorenz curve diagram — every corner lettered, every wrong answer diagnosed.

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