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The Marginal Efficiency Cost of Redistribution

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  • Ballard, Charles L

Abstract

The efficiency effects of redistributive policies are analyzed using a computational general equilibrium model, based on U.S. data for 1979. For parameter values considered most reasonable, a tax-financed universal cash grant generates losses for the higher-income groups that exceed the gains of the lower-income groups by 50 to 130 percent. These efficiency costs are substantially below those calculated by other authors. The marginal efficiency cost of redistribution through wage subsidies is near zero and can be negative. Social preferences regarding inequality need not be anywhere near Rawlsian in order for society to prefer further redistribution. Copyright 1988 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 78 (1988)
Issue (Month): 5 (December)
Pages: 1019-33

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Handle: RePEc:aea:aecrev:v:78:y:1988:i:5:p:1019-33

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Cited by:
  1. R. H. Haveman & J. K. Scholz, . "The Clinton welfare reform plan: Will it end poverty as we know it," Institute for Research on Poverty Discussion Papers 1037-94, University of Wisconsin Institute for Research on Poverty.
  2. Roed, Knut & Strom, Steinar, 2002. " Progressive Taxes and the Labour Market: Is the Trade-Off between Equality and Efficiency Inevitable?," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 77-110, February.
  3. Edward J. Bird, 1996. "Repairing the safety net: Is the EITC the right patch?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(1), pages 1-31.
  4. Deirdre McCloskey, 1998. "Simulating Barbara," Feminist Economics, Taylor and Francis Journals, vol. 4(3), pages 181-186.
  5. Jonathan R. Kesselman, 1986. "The Royal Commission's Proposals for Income Security Reform," Canadian Public Policy, University of Toronto Press, vol. 12(s1), pages 101-112, February.
  6. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2005. "Welfare Reform in European Countries: A Microsimulation Analysis," OECD Social, Employment and Migration Working Papers 28, OECD Publishing.
  7. Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 2003. "Trade liberalization, poverty and efficient equity," Journal of Development Economics, Elsevier, vol. 71(1), pages 97-128, June.
  8. Nipon Poapongsakorn & Kovit Charnvitayapong & Duangmanee Laovakul & Somchai Suksiriserekul & Bev Dahlby, 2000. "A Cost-Benefit Analysis of the Thailand Taxpayer Survey," International Tax and Public Finance, Springer, vol. 7(1), pages 63-82, February.
  9. Bryan, James B., 2005. "Targeted programs v the basic income guarantee: an examination of the efficiency costs of different forms of redistribution," The Journal of Socio-Economics, Elsevier, vol. 34(1), pages 39-47, February.
  10. Robert Shelburne, 2006. "A Utilitarian Welfare Analysis of Trade Liberalization," ECE Discussion Papers Series 2006_4, UNECE.
  11. Peter Lindert, 2003. "Why The Welfare State Looks Like a Free Lunch," Working Papers 27, University of California, Davis, Department of Economics.
  12. Lindert, Peter, 2002. "Why the Welfare Looks Like a Free Lunch," Working Papers 02-7, University of California at Davis, Department of Economics.
  13. Daniel Flores Curiel, 2003. "Un incremento en la tasa del IVA sobre los alimentos: ¿eficiencia, equidad o recaudación?," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 1-14, November.
  14. Stuart Adam, 2005. "Measuring the marginal efficiency cost of redistribution in the UK," IFS Working Papers W05/14, Institute for Fiscal Studies.
  15. Chris Jones, 2005. "Why the Marginal Social Cost of Funds is not the Shadow Value of Government Revenue," ANU Working Papers in Economics and Econometrics 2005-449, Australian National University, College of Business and Economics, School of Economics.
  16. Nada Eissa & Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2004. "Evaluation of Four Tax Reforms in the United States: Labor Supply and Welfare Effects for Single Mothers," NBER Working Papers 10935, National Bureau of Economic Research, Inc.
  17. Toshihiro Ihori & C.C. Yang, 2008. "Tax Competition, Public Good Provision, and Income Redistribution: The Case of Linear Capital Income Tax," CIRJE F-Series CIRJE-F-595, CIRJE, Faculty of Economics, University of Tokyo.
  18. Boadway, Robin, 1999. "Le rôle de la théorie de l’optimum du second rang en économie publique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(1), pages 29-65, mars-juin.

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