Prerequisites and Consequences of Inequality and Poverty

Inequality and poverty are inherent in every society and they are simultaneously an undesirable and inevitable companion of economic development. The existence of inequality is somewhat natural in view of the different knowledge and skills of people that determine their individual productivity. It can even be argued that income and material disparities among the population create an incentive for more effort, pursuit of better education and, consequently, the improvement of the well-being of the whole community. In reality, however, the problem is not in inequality itself (it is hard to avoid), but in its size, in the causes that deepen it to the point where it becomes unacceptable to the majority of people. Inequality and poverty could be triggered by a multitude of reasons – either natural, or ones caused by the imperfections of market mechanisms. For this reason existing economic systems are not able to automatically regulate them. This function should be performed by the state through the implementation of different policies in order to limit their development and reduce the social tension born out of them. The main purpose of this study is to explain why excessive inequality is undesirable from both a social and a purely economic perspective. The article is developed in two parts. The first part deals with the problem, examines the different measures of poverty and inequality and justifies the need for state intervention. The second part discusses possible solutions. The existing legal framework is analyzed and the various mechanisms available to the country to counteract the unfavorable trends are examined.