Step ➊ : Define ‘income’ and ‘wealth’ in the introduction.


In order to reduce inequality in the distribution of income and wealth, several policies are adopted by the government. First, it is important to distinguish between income and wealth. Income is the reward for the services of a factor of production, for example, wages and salaries for labour whereas wealth is the accumulation of a stock of assets such as property, bonds or bank accounts.


Step ➋ : Explain the impact of taxation on income and wealth.


The tax system can be used in order to reduce inequalities in income and wealth. Progressive income taxes can be used. Those earning higher incomes can be taxed a higher percentage of their income than those on lower incomes.