The 'poverty trap' refers to the problem where low income earners are effectively taxed at a high marginal tax rate when they begin to work more, and consequently lose some of their government benefits.

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The poverty trap is a real phenomenon where low income earners face a high effective marginal tax rate as they earn more, due to the loss of government benefits such as welfare or housing subsidies. This can discourage individuals from working more, as they may not see a significant increase in their take-home pay after factoring in the loss of benefits.

The 'Poverty Trap' Refers to the Problem Where Low Income