A ghetto tax is the phenomenon of people with low incomes, particularly those living in poverty-stricken areas, paying higher prices for goods and services.
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 Institution, titled From Poverty, Opportunity: Putting the Market to Work for Lower Income Families, is widely cited as a study into ghetto taxes, although the report itself does not use the term. The problem of ghetto taxes is closely associated with mobility; one study in the United States 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.
Financial Services: Customers who can maintain a minimum bank balance can avoid fees, such as monthly fees, or qualify for higher interest rates on their deposits. There are also fewer ATMs in poor areas, and often they are third-party machines that charge fees to all users.
Health care: Poorer people have worse and more expensive health conditions, and poorer neighborhoods have fewer doctors' offices and medical facilities.
Transportation: Poorer neighborhoods tend to have fewer nearby jobs, requiring longer commutes and more transportation costs in time and money. This can also decrease employment opportunities, increasing unemployment. Public transportation also tends to underserve poorer areas.
Groceries: Grocery stores in poor neighbourhoods are smaller than in richer neighbourhoods; lacking economies of scale, they are more expensive as well. Low income households may find transportation to cheaper out-of-town supermarkets too costly, or too burdensome, with refrigerated foods needing to last a car or bus ride home. Some poor households may not be able to afford large quantities, and hence lose out on bulk discounts. Poorer areas are also more likely to be food deserts, with only convenience stores available, which have higher prices than supermarkets and a higher proportion of unhealthy foods.
Household appliances: In the USA, lower-income households are more likely to spend more on a given household item. Also, rent-to-own and consumer financing terms tend to have high interest rates and are mostly used by people unable to pay the full costs of their purchases up-front.
Utilities: Poor people are more likely to pay higher prices for long-distance phone calls.
Cigarettes: In some areas it is possible to buy single cigarettes. Purchasers are typically poor, but per-cigarette cost is higher, thus making smoking a more expensive habit for poorer people. This is in addition to the fact that the prevalence of smoking is already concentrated in lower socioeconomic groups.
