Taxation and economic inequality are related. How we tax people can either help reduce or increase the gap between rich and poor.

1. Types of Taxation:

   • Progressive Taxation: This means people who earn more money pay a higher percentage in taxes. For example, in the UK:
     • If you earn between £12,571 and £50,270, you pay 20% tax.
     • If you earn between £50,271 and £150,000, you pay 40% tax.
     • If you earn above £150,000, you pay 45% tax.
   • Regressive Taxation: In this system, people with lower incomes pay a larger share of their money in taxes. For instance, the VAT (value-added tax) in the UK is 20%, and this hits lower-income folks harder.

2. Effect on Income Distribution:

   • A report from Oxfam in 2022 showed that the richest 1% of people earn 23% of all global income. Meanwhile, the bottom half of the population only earns 10%.
   • Another study from the Institute for Fiscal Studies found that income inequality in the UK has gone up by nearly 20% since the 1980s. This means that bad tax rules can make inequality worse.

3. Redistribution Effects:

   • Taxes help pay for public services and support programs for people with lower incomes. This can help reduce inequality. For example, in the UK, welfare spending is about 12% of the country's total economic output (GDP).

In conclusion, smart tax policies can help tackle economic inequality. They can create a fairer society by redistributing wealth and funding important social services.