The term ghetto tax is used to describe the generally higher prices those with low incomes pay for goods

Goods

Goods may refer to;*Good , physical product*Personal property, legal personal chattels...

 and services, particularly those living in poverty-stricken areas.

Economic principles

A ghetto tax is not literally a tax; it is a situation in which people pay higher costs for equivalent goods or services simply because they are poor, or live in a poor area. A paper by the Brookings Institute, titled "From Poverty, Opportunity: Putting the Market to Work for Lower Income Families", is widely cited as a study into ghetto taxes.

The problem of ghetto taxes is closely associated with mobility; one study in the USA showed that higher prices might be prevalent in some neighbourhoods, but people with access to a car would have more access to affordable goods and services elsewhere, whilst those without a car would bear the brunt of higher local prices.

Tackling the problem of ghetto taxes is difficult. For instance, high-interest-rate loans are more likely to be taken by people on lower incomes; however, a study has shown that capping interest rates results in reduced credit availability for those people who most need it. This may make the problem worse.

Examples

• Credit services: Lower income consumers are much more reliant on upon alternative financial services that are more expensive, such as check cashers and payday lenders, pawnshops, and auto-title lenders.

• Cigarettes: In some areas it is possible to buy (legally or illegally) single cigarettes. Purchasers are typically poor (and perhaps unable to afford a whole pack of cigarettes), but per-cigarette cost is higher, thus making smoking a more expensive habit for poorer people. This is in addition to the fact that (in many countries) the prevalence of smoking is already concentrated in lower socioeconomic groups.

• Household appliances: In the USA, lower-income households are more likely to spend more on a given household item. Also, rental of household electrical items is generally more expensive in the long term than purchasing them, but these rental services are mostly used by people unable to pay the whole cost of the item up-front.

• Groceries: Grocery stores in poor neighbourhoods are smaller than in large neighbourhoods; lacking economies of scale
  Economies of scale
  Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
  
  , they are more expensive as well. Low income households may find it difficult to access cheaper out-of-town supermarkets. Some poor households may not be able to afford large quantities, and hence lose out on "bulk discounts".

• Poor people are more likely to pay higher prices for long-distance phone calls.

See also

• Hyperghettoization
• Regressive tax
  Regressive tax
  A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...
  
  
• Sin tax
  Sin tax
  A sin tax is a kind of sumptuary tax: a tax specifically levied on certain generally socially proscribed goods and services. These goods are usually alcohol and tobacco, but also include candies, soft drinks, fat foods and coffee, while services range from prostitution to...
  
  es are often regressive; that is, people on lower incomes often pay a greater share of taxes on alcohol or tobacco.