3.4 Economics of inequality and poverty Questionbank

Guatemala is a Central American country with an estimated population of 17.9 million (2022). According to World Bank data, real GDP was approximately US$85 billion in 2022. Agriculture, particularly coffee, sugar, and bananas, makes up a significant portion of Guatemala’s exports (around 28% of total exports). While the tourism sector has been expanding, recent global events caused slowdowns. The country experiences persistent inequality, with a Gini coefficient estimated at about 0.48 in 2021. Poverty remains a major concern, especially in rural areas.

Guatemala’s tax system includes both direct and indirect taxes, although collection remains challenging. Personal income tax rates are progressive, with a top rate of 31%, while the corporate income tax rate is 25%. A value-added tax (VAT) of 12% applies to most goods. Government spending has focused on infrastructure and social programs to reduce poverty and increase potential long-term growth.

Table 1: Macroeconomic Indicators of Guatemala (2019–2022)

Table 2: Income Distribution in Guatemala (2021)

Table 3: Market for Guatemalan Coffee in the US (price per 50 kg bag)

Table 4: Tax Rates in Guatemala

Figure 1 (not drawn here) shows that, when government spending in Guatemala increases by US$1 billion, real GDP rises by an estimated US$2.5 billion. This suggests a government spending multiplier of 2.5.

Recent Economic Trends in Chile

Chile, located along the western coast of South America, is widely regarded as one of the region’s most stable and prosperous nations. With a population of around 19 million, the country boasts a successful track record in macroeconomic management, marked by consistent economic growth and relatively low government debt levels. However, ongoing shifts in global trade, fluctuating copper prices, and recent policy reforms have brought new challenges to Chile’s economy.

In 2022, Chile recorded an average monthly wage of approximately US$600, though the cost of living in major urban centers such as Santiago continues to rise. To maintain price stability, the Central Bank of Chile has long operated an inflation-targeting regime, typically aiming for annual inflation close to 3%. Yet external pressures—like disruptions to global supply chains—pushed the inflation rate up to 7.2% in 2022. Unemployment remains a pressing issue; following a peak of 10.7% in 2020 when economic activity contracted, joblessness has gradually declined as the economy recovers.

Chile’s economic identity is strongly tied to mining, particularly copper, which accounts for a significant proportion of export revenues. In 2022, approximately 45% of total exports came from copper and other minerals. While copper has been a major driver of economic growth, economists and policymakers increasingly emphasize diversification to protect against commodity price volatility. The government has also expanded support for agricultural and service industries, promoting increased global competitiveness through various trade agreements with North American and Asian partners.

On the fiscal side, Chile historically prided itself on low government debt, yet debt levels have slowly risen to 37% of GDP by 2022. This reflects higher spending on social programs, including public healthcare and education subsidies. Policymakers are attempting to strike a balance between prudent fiscal management and ensuring equitable access to basic services. In the microeconomic arena, Chile introduced an excise tax on sugar-sweetened beverages to discourage unhealthy consumption and reduce negative externalities tied to rising obesity rates.

Foreign direct investment (FDI) flows remain relatively stable in non-mining ventures, particularly in renewable energy sectors such as solar and wind. The government has enacted regulatory changes that encourage private-sector participation in green investments, hoping to lessen reliance on fossil fuels. Analysts predict that over the next decade, renewable energy might comprise up to 30% of Chile’s energy mix, helping the country manage environmental externalities while sustaining long-term economic growth.

Despite Chile’s liberalized trade regime, some domestic industries face competitiveness hurdles from global market fluctuations. The peso’s exchange rate is influenced by copper prices. Therefore, this has spurred officials to pursue greater diversification.

Income distribution remains a topic of debate. Chile has recorded improvements in its Gini coefficient over the past decade, yet inequalities persist—especially in rural areas where access to education and healthcare lags behind that in urban regions. Government initiatives to raise the minimum wage and invest in vocational training signal attempts to address income disparities, which some critics argue need more comprehensive policies.

Private enterprise plays a central role in Chile’s leading export industries. In the mining sector, large multinational firms partner with domestic companies, creating jobs and contributing to government revenue. Nevertheless, critics point to environmental costs from mining activities and the need for stricter regulations to ensure sustainable resource use. Many also question whether enough investments are being channeled into non-traditional sectors like technology and advanced manufacturing—areas widely seen as key to sustainable future growth.

Moving forward, Chile’s policy landscape continues to evolve. Discussions about strengthening social safety nets, investing further in green energy, and maintaining a competitive exchange rate occupy center stage. The government’s approach to promoting inclusive development includes balancing social spending with structural reforms that attract both domestic and foreign investors. Ultimately, Chile’s ability to diversify its economy beyond copper and ensure equity across various regions will determine its long-term path to stable and inclusive growth.

Table 1: Chile’s Macroeconomic Indicators (2019–2022)

Table 2: Chile’s Export Composition (2022)

Estonia is a small Baltic nation of approximately 1.3 million people and a member of the European Union (EU). Its economy is characterized by a highly developed digital infrastructure, a strong commitment to innovation, and comparatively low public debt. The country has seen notable growth in service sectors such as tourism and information technology (IT). Estonia is also known for its relatively low level of corruption and ease of doing business.

In recent years, Estonia’s GDP growth has fluctuated. Between 2018 and 2019, real GDP grew steadily due to robust exports of IT services and growth in inbound tourism. However, the global economic slowdown in 2020 led to lower tourism revenues, affecting the country’s overall economic performance. Income inequality has been an area of focus for policymakers, given Estonia’s Gini coefficient has been moderate but slowly increasing. The government maintains several forms of taxation (including VAT, personal income tax, and corporate taxation), each contributing differently to government revenue.

Tourism is an important source of income, especially from visitors from Finland, Russia, and other EU countries. Average spending per tourist has tended to rise, but so have accommodation and transportation costs. The price elasticity of demand for inbound tourism is not negligible, as changes in travel costs and exchange rates influence tourist flows.

Estonia’s taxation system includes a flat personal income tax rate of 20%, although there are discussions about introducing progressive elements. VAT rates vary depending on the product category. Meanwhile, the government has contemplated expansionary fiscal measures to offset slower growth periods. Policymakers also debate the efficacy of supply-side policies (such as reducing labor taxes and encouraging business start-ups) to maintain Estonia’s competitiveness in the global digital economy.

Table 1: Selected Macroeconomic Indicators for Estonia (2018–2021)

Table 2: Estimated Demand for Inbound Tourism (annual)

Table 3: Government Tax Data (2021)

Table 4: Consumption and Multiplier Data (2021)

Economic and Social Developments in Hong Kong

Hong Kong is an international financial center located on the southern coast of China. Renowned for its open trading environment and large foreign exchange reserves, Hong Kong has historically pursued free-market policies to spur economic growth. However, recent challenges, including sluggish global demand and ongoing demographic shifts, have contributed to concerns about rising income inequality and persistent poverty. The government reports that 15.8% of the population (over 1.1 million people) live below the official poverty line, which is defined relative to median household income. In addition, Hong Kong’s Gini coefficient remains among the highest in developed economies, at around 0.539 in 2021.

Hong Kong’s role as an entrepôt for Chinese exports and as a major financial hub has driven its economic growth over several decades. Services make up close to 93% of GDP, while manufacturing accounts for only 1% of GDP. The region’s unemployment rate has typically been low, hovering around 2.9% in normal times. However, certain sectors particularly tourism and hospitality experienced a downturn due to global movements in travel restrictions and changing consumer behavior. This contributed to a slight pick-up in the overall unemployment rate to 4.7% by 2021.

The government maintains a near-balanced budget, attributable in part to revenue sources such as profits tax, stamp duties on real estate transactions, and land lease sales. Nevertheless, there is growing debate on whether Hong Kong’s minimal social welfare spending is sufficient to address structural poverty. Some argue that targeted subsidies and cash transfers are needed to prevent low-income households, especially the elderly, from slipping into deeper poverty. Indeed, the government launched a pilot scheme in 2020 offering housing vouchers to households below 60% of median income, claiming initial success in reducing homelessness by 15%.

Hong Kong also faces macroeconomic challenges. Real GDP growth decelerated from 3.0% in 2018 to -1.2% in 2019, before contracting again in 2020 due to global economic disruptions. By 2021, real GDP marked a modest recovery of 2.5%. Inflation remained relatively low, averaging 1.6% in 2021, owing partly to subdued consumer demand. At the same time, the Hong Kong Monetary Authority (HKMA) employs a currency board system pegging the Hong Kong dollar to the US dollar, which limits the use of independent monetary policy instruments.

In response to developmental concerns, the government has initiated programs focused on skill enhancement and vocational training to prevent the formation of a “poverty cycle,” where poor access to education and health-care perpetuates low wages and limited economic mobility. A new Child Development Fund aims to provide means-tested asset-building accounts for underserved youth, while strong emphasis is also being placed on technology upskilling and English language proficiency to enhance employability in service-oriented sectors.

Despite these measures, Hong Kong’s open economy leaves it exposed to global trade fluctuations. Exporters face falling demand from some of Hong Kong’s key markets, even as rising regional competition for port and logistics services puts additional pressure on trade revenues. On the other hand, foreign direct investment (FDI) inflows rose to HKD 1.1 trillion in 2021, reflecting sustained investor confidence in Hong Kong’s legal framework and financial markets. Policymakers must navigate a tight balance between preserving Hong Kong’s “small government, big market” tradition and addressing socioeconomic gaps that threaten long-term development.

Below are selected data illustrating the economy’s performance and its social challenges.

Table 1: Hong Kong’s Selected Macroeconomic Indicators (2018–2021)

Table 2: Poverty and Development Indicators for Hong Kong

Denmark is a highly developed economy in Northern Europe with a population of about 5.9 million. It boasts one of the highest standards of living in the world, supported by a broad-based welfare system and progressive taxation. The service sector, advanced manufacturing, and renewable-energy technology form key parts of its economy. Denmark’s central bank has maintained low interest rates, helping to foster economic stability. However, challenges such as ensuring long-term sustainability of the welfare system and addressing potential future energy shortfalls remain.

Exports are crucial for Denmark’s economic success, with wind turbines, pharmaceuticals, and meat products contributing significantly to export revenues. Wind turbine manufacturers in Denmark have become global leaders, but recent shifts in global demand and competition from Asian producers have tested the capacity of local firms. Meanwhile, a high rate of personal and corporate income tax has provided funds for extensive public expenditure, including education, healthcare, and infrastructure.

Table 1: Selected Macroeconomic Indicators for Denmark (2022–2023)

Table 2: Market for Wind Turbines Produced in Denmark

Table 3: Income Distribution in Denmark (2022)

Table 4: Overview of Tax Rates in Denmark

In 2023, an energy-infrastructure firm in Denmark is planning a major investment worth 1.2 billion DKK, and claims it could significantly boost the economy by generating additional consumption expenditures.

Wind Turbine Exports
Denmark exported 70 units of wind turbines at an average price of 11,000,000 DKK per unit to other European countries in 2022. Owing to rising demand for renewable energy worldwide, the price of wind turbines exported from Denmark is expected to rise from 11,000,000 DKK to 12,000,000 DKK per unit in 2023. However, global competition from producers in Asia might cause changes in the quantity demanded.

Fiji is an archipelago located in the South Pacific, known for its thriving tourism industry and longstanding sugar sector. Tourism directly and indirectly accounts for nearly 38% of Fiji’s gross domestic product (GDP), making it one of the country’s main sources of foreign exchange. The island nation receives over 800 000 international visitors in a normal (non-pandemic) year, with most tourists arriving from Australia and New Zealand. However, dependence on tourism also makes Fiji vulnerable to external shocks such as global economic downturns or natural disasters.

The sugar industry is the second-largest contributor to Fiji’s export earnings, employing workers in growing, harvesting, and processing sugarcane. Due to changing weather patterns and competition from other sugar-producing nations, sugar production in Fiji faces challenges in expanding supply. In an effort to diversify government revenue, Fiji applies a 9% value added tax (VAT) on domestic sugar sales.

In 2022, the Fijian government announced a 200 million FJD infrastructure investment program aimed at improving rural roads, upgrading port facilities, and modernizing sugar processing plants. Economists estimate Fiji’s marginal propensity to consume (MPC) at 0.75, suggesting a potentially significant boost to aggregate demand if the infrastructure spending is effectively implemented.

Table 1: Key Macroeconomic Indicators for Fiji (2019–2020)

Table 2: Sugar Market Data in Fiji

Additional Information

• Fiji’s VAT on sugar is 9%.
• The government’s total planned infrastructure investment in 2022 is 200 million FJD.
• Economists estimate Fiji’s MPC = 0.75.
• Corporate tax rate is 20%.
• Personal income tax is a progressive system up to 20%.

Estonia is a small, high-income European country with a population of around 1.33 million. The Estonian economy is highly open, with exports accounting for a large share of its GDP. In 2021, Estonia’s real GDP was approximately €34.5 billion, growing by 8.0%, while the 2022 figure rose to €36.4 billion, with real GDP growth of 3.5%. Over the same period, the unemployment rate declined from 6.2% to 5.6%.

Estonia is known for its advanced digital infrastructure, which has attracted investment in technology and services. However, inflation surged in 2022 due to global supply pressures and increased energy prices. Estonia has a relatively low level of income inequality compared to many countries, as measured by its Gini coefficient, which improved slightly from 0.31 in 2021 to around 0.30 in 2022.

Estonia’s tax system is characterized by a flat personal income tax rate of 20% and a 20% corporate tax on distributed profits. The government also raises revenue through value-added tax (VAT) at 20%, excise duties, and social security contributions of 33%. The timber industry plays a significant role in Estonian exports; higher prices for timber have contributed to fluctuations in export earnings.

Below are three tables presenting selected data for the Estonian economy:

Table 1: Selected Macroeconomic Indicators for Estonia (2021–2022)

Table 2: Timber Market Data in Estonia

Table 3: Tax Revenue in Estonia (2022)

Serbia is a country located in Southeastern Europe with a population of approximately 6.9 million. Its official currency is the Serbian dinar (RSD). According to official estimates, Serbia’s nominal GDP in 2022 reached US$65.2 billion, growing from US$63.5 billion in 2021. The unemployment rate stands at 9.8%, although it can be higher in rural areas. Inflation in 2022 averaged about 11.5%, driven partly by increasing energy prices.

Serbia is well-known for its agricultural output—especially raspberries, where it ranks among the top producers in the world. Domestically, the government charges a 20% value added tax (VAT) on many goods and services. The personal income tax system has a base rate of 10%, rising gradually for higher income brackets, while corporate income is taxed at 15%. The Gini coefficient stands at 0.35, suggesting moderate income inequality.

Trade is a constant focus of Serbian economic policy. Serbia has strong trade links with the European Union (EU), which accounts for roughly 63% of its exports. Policymakers have debated using expansionary fiscal policy to support economic growth, focusing on infrastructure development and public investment.

Table 1: Selected Macroeconomic Indicators for Serbia (2022)

Table 2: Labour Market Data for Serbia (2022)

Table 3: Domestic Market for Raspberries in Serbia

Figure 1 (not shown) illustrates the domestic demand (Dd) and supply (Sd) for raspberries in Serbia, where the equilibrium price in 2022 was 300 RSD per kg. By early 2023, the price reached 350 RSD per kg as global demand picked up.

Greenland, an autonomous territory of Denmark, is the world’s largest island with a population of about 56000 people. The economy relies heavily on fisheries (accounting for more than 90% of Greenland’s total exports), public sector services financed through grants from Denmark, and (increasingly) tourism. Recent explorations suggest that Greenland has untapped reserves of minerals and rare earth elements. However, high infrastructure costs and environmental considerations pose challenges to diversification.

Real GDP growth has been volatile due to changes in global demand for fish products and fluctuations in fish prices, while the population faces income inequality concerns. Recent debates in Greenland’s Parliament (Inatsisartut) focus on reforms to taxation and public spending, seeking to foster inclusive economic growth and reduce income disparities.

Table 1: Key Macroeconomic Indicators of Greenland (2018–2021)

Table 2: Fish Exports Data (2019–2021)

Table 3: Income Distribution and Taxation(2021)

Figure 1: Simplified market for Greenlandic Halibut (2021)

Prices are measured in DKK per tonne. Demand (D) and supply (S) represent domestic demand and supply. Pw1 is the initial world price of 28 000 DKK per tonne, while Pw2 is a possible world price of 30 000 DKK per tonne.

Italy is the Eurozone’s third largest economy. Although it experienced a sharp contraction in 2020 due to the global pandemic, economic recovery followed in 2021 and 2022, partly driven by an upturn in manufacturing and consumer spending. Italy’s unemployment rate, however, remains higher than the European Union average. Income inequality, measured by the Gini coefficient, is moderate but still a concern for policymakers aiming to promote inclusive growth.

Italian coffee culture remains a vital part of domestic consumption. Table 2 provides data for the market for coffee beans. Despite fluctuations in demand and price, Italy’s coffee imports and exports of processed coffee products continue to be important for the country’s trade balance.

In 2021, Italy’s exports of manufactured goods such as machinery and vehicles led to a small trade surplus, as shown in Table 3. The government also relies on progressive income taxes to finance public spending. Some economists argue that a well-designed policy could improve both growth prospects and income distribution.

Table 1: Selected Macroeconomic Data for Italy

Table 2: Market for Coffee Beans in Italy (Hypothetical Data)

Table 3: Italy’s Key Trade Data (2021)