Empirical Project 12 Government policies and popularity: Hong Kong cash handout

Learning objectives

In this project you will:

Key concepts

  • Concepts needed for this project: percentile, Gini coefficient, and Lorenz curve.
  • Concepts introduced in this project: nominal and real values.

Introduction

CORE 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 to reject free money, 120,000 residents (around 2% of all eligible residents) did not register to receive the handout. There were various arguments 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.

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