Discuss whether or not fiscal policy measures will increase a country’s HDI value. 8M
KS Academia Prep Method
Point by point, chain by chain, so you never miss a mark
This answer follows our KS Academia Prep Economics teaching methodology. Every argument is written as a numbered point (A1, A2, A3…), and every point is a full chain of analysis that links back to the question. Examiners reward the links, not just the ideas.
1. Know
Define the key terms and name the parts, e.g. the three components of HDI.
2. Apply
Build each point as a chain: cause ➔ effect ➔ effect ➔ back to the question.
3. Evaluate
Argue both sides, then conclude with what the outcome depends on.
Example chain: More government spending on hospitals ➔ more people can get treatment ➔ fewer people die young ➔ life expectancy rises ➔ HDI value increases.
This is not the only answer. There are more possible points, and this question also links to other topics in the syllabus. Strong students make these links:
Supply-side policyEconomic growthPoverty & income distributionInflationGovernment budget & national debtLiving standards
In class, we work through these extra points and links, along with more techniques like this one.
The Human Development Index (HDI) is a composite measure of living standards. It combines:
- life expectancy at birth,
- mean and expected years of schooling,
- and gross national income (GNI) per head/capita.
Any effect on healthcare, education and income would lead to HDI increasing.
Fiscal policy is the use of changes in taxation and government spending to influence the economy.
Yes, fiscal policy increases HDI
- A1 Healthcare spending. The government can increase spending on hospitals, clinics and doctors. People, especially low-income households, who previously were unable to access or afford treatment, can then get treatment and vaccinations against preventable diseases, so fewer citizens die young. Life expectancy at birth rises, so the health component of HDI, and therefore the HDI value, increases.
- A2 Infrastructure spending. Spending on roads makes hospitals and schools easier to reach, especially for people in rural areas, which can raise life expectancy and years of schooling.
- Better roads also cut transport costs for firms, so they increase output and employ more workers. Incomes rise, so GNI per head increases and the HDI value rises.
- A3 Education spending. Spending on free schooling, either by direct government provision or subsidies, leads to more schools being built and more teachers being hired. This leads to more classes in schools for younger children, and expected years of schooling rises.
- Better-educated workers are more productive and earn higher wages, so GNI per head also rises, raising HDI further.
- A4 Tax cuts and benefits. Cutting income tax or paying cash benefits to low-income households raises their disposable income.
- They can afford more nutritious food, a balanced diet, medicine, vaccinations and school costs, which supports life expectancy and schooling.
- Higher spending also raises total demand, so firms produce more and employ more workers, increasing GNI per head.
Why fiscal policy may not increase HDI
- A5 Not targeted at HDI. Some fiscal measures do not affect the HDI components directly. Spending on defence, or a cut in corporation tax that mainly raises firms’ profits, does little to raise life expectancy or years of schooling.
- A6 Poor quality. Government spending may be lost through corruption or poor management. A new hospital without enough trained doctors, or a school without qualified teachers, does not improve health or learning.
- A7 Time lags. Building hospitals and schools takes years. A child who starts school today will not raise mean years of schooling or enter the labour force for many years. Any rise in HDI from fiscal policy may therefore only appear in the long run. In the short run, disruption to roads during construction might even reduce HDI.
- A8 Tax rates. If the government raises income tax to pay for the spending, households’ disposable income falls, so consumer spending and incomes may fall. If it borrows instead, national debt rises and future interest payments may force cuts to government spending on healthcare and education.
- If the economy is nearing full capacity, higher total demand may mainly cause inflation rather than higher real incomes.
Overall, whether fiscal policy increases a country’s HDI depends on:
- The level of information the government has
- The development of the country: rural vs urban areas
Similar questions
- CB_Dev_Exam DR2(g), 6 marks: “Discuss whether or not a decrease in the average hours worked is likely to have an impact on a country’s HDI.”
- CB_Dev_Ch32 Q1(d), 8 marks: “Discuss whether or not HDI is a good measure of living standards.” This has a scaffolded answer frame in the earlier tutorial package.
- “Discuss how an increase in investment can result in a rise in a country’s HDI value.” [8M]
Kirby Ng is a Full-Time Economics Tutor who graduated from NUS Economics. At KS Academia Prep he teaches IGCSE Small Group classes and IB Economics Lessons in Mandarin and English at Far East Shopping Centre, #15-06, 545 Orchard Road. He also writes the centre’s revision resources, including the IGCSE Economics diagrams guide and the IB Economics diagrams guide.
In his free time you can catch Kirby watching baseball games, hoping that the Mariners can one day win reach the World Series.