The Paradox of Poverty

“It is more expensive to be poor.” The phrase sounds contradictory, but economics proves it true. Poverty is not only about earning less; it is also about spending more for the same things. These hidden costs—known as regressive burdens—are built into taxes, pricing, and even public policy. Fiscal systems designed to promote fairness can, in practice, make poverty harder to escape.

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What Fiscal Policy Is Meant to Do

Fiscal policy is how governments collect and spend money through taxation, subsidies, and public services. In theory, it redistributes wealth: the rich contribute more, and the poor benefit through education, healthcare, and welfare. But the reality is more complicated. When fiscal systems rely heavily on consumption taxes like sales tax or value-added tax (VAT), low-income citizens end up contributing a larger share of their income than high-income groups.

Economists call this a regressive tax system—one that looks equal but acts unequal.

Equal Rule, Unequal Sacrifice

Consider two people buying the same ₹500 pair of shoes. The 10 percent VAT adds ₹50 for both.

For someone earning ₹5,000 a month, that tax is one percent of their income.
For someone earning ₹50,000, it’s only a tenth of a percent.

Both pay the same rate, but the impact is not the same. The poorer consumer loses a larger portion of their disposable income. When most earnings go toward taxed essentials like food, fuel, and data, there is little left to save or invest.

Fairness on paper becomes fallout in practice.

Everyday Costs that Punish Poverty

The Poverty Premium

Poorer families often shop at local stores that sell small quantities at higher prices per unit. Without access to bulk discounts, they pay more for basics such as rice, soap, and cooking oil. This “micro-buying” habit is known as the poverty premium—a hidden penalty for surviving on a low income.

Transport and Utilities

A flat fuel tax applies equally to all drivers, but the burden is heavier for delivery workers than for luxury-car owners.
The same happens with mobile-data packs, electricity fees, and service charges. These fixed or regressive costs consume a higher percentage of lower incomes. Each transaction seems minor, but together they form an invisible system of inequality.

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The Global Pattern

Studies in Armenia, Ethiopia, and Sri Lanka show that fiscal policy often reduces income inequality slightly but fails to reduce poverty. High consumption taxes and limited welfare transfers mean that poor households pay more into the system than they get back. Even when governments claim to redistribute fairly, the poorest still fund public services they cannot access with the same quality as wealthier citizens.

Fair in statistics, unfair in experience.

Inequality Compounds Like Interest

At the macroeconomic level, this imbalance builds over time. Wealthier households save and invest; poorer ones spend nearly all they earn just to meet basic needs. Economist Thomas Piketty describes this as a mathematical inevitability: when the rate of return on capital grows faster than the economy itself, inequality widens.

If fiscal policy does not counteract this, the gap compounds—turning poverty into a structural trap rather than a temporary state.

Why Fiscal Fairness Matters

Persistent inequality does more than hurt wallets. It erodes trust in institutions, fuels political discontent, and weakens democracy. When indirect taxes replace progressive ones, the system quietly shifts the burden from those most able to pay to those least able to bear it.

Real fairness requires seeing taxation and spending as complementary tools:

Progressive income taxes that collect proportionally more from higher earners.
Targeted subsidies that lighten the load for low-income households.
Accessible public services that give equal quality to all.

The Takeaway

Fairness is not achieved by treating everyone the same. It begins by recognizing that not everyone starts from the same place. When fiscal policy ensures that people pay in line with what they can afford—and receive in line with what they need—then equality becomes more than a statistic. It becomes a system where being poor no longer costs more.