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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.

Suggested Citation

  • Ballard, Charles L, 1988. "The Marginal Efficiency Cost of Redistribution," American Economic Review, American Economic Association, vol. 78(5), pages 1019-1033, December.
  • Handle: RePEc:aea:aecrev:v:78:y:1988:i:5:p:1019-33
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    Cited by:

    1. Fabio Padovano & Francesco Scervini & Gilberto Turati, 2016. "How do Governments Fare about Redistribution? New Evidence on the Political Economy of Redistribution," CESifo Working Paper Series 6137, CESifo Group Munich.
    2. R. H. Haveman & J. K. Scholz, "undated". "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.
    3. Kevin Hsu & Yang, 2008. "Political Economy And The Social Marginal Cost Of Public Funds: The Case Of The Meltzer-Richard Economy," Economic Inquiry, Western Economic Association International, vol. 46(3), pages 401-410, July.
    4. 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.
    5. Deirdre McCloskey, 1998. "Simulating Barbara," Feminist Economics, Taylor & Francis Journals, vol. 4(3), pages 181-186.
    6. 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.
    7. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2007. "Welfare reform in European countries: a microsimulation analysis," Economic Journal, Royal Economic Society, vol. 117(516), pages 1-44, January.
    8. Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2014. "Trade liberalization, poverty and efficient equity," World Scientific Book Chapters,in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 11, pages 255-286 World Scientific Publishing Co. Pte. Ltd..
    9. Bryan, James B., 2005. "Targeted programs v the basic income guarantee: an examination of the efficiency costs of different forms of redistribution," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(1), pages 39-47, February.
    10. Sam Allgood & Arthur Snow, 1998. "The Marginal Cost of Raising Tax Revenue and Redistributing Income," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1246-1273, December.
    11. Sam Allgood, 2009. "The Collective Household, Household Production and Efficiency of Marginal Reforms," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(5), pages 749-771, October.
    12. Stuart Adam, 2005. "Measuring the marginal efficiency cost of redistribution in the UK," IFS Working Papers W05/14, Institute for Fiscal Studies.
    13. Peter Lindert, 2003. "Why The Welfare State Looks Like a Free Lunch," Working Papers 27, University of California, Davis, Department of Economics.
    14. Eissa, Nada & Kleven, Henrik Jacobsen & Kreiner, Claus Thustrup, 2008. "Evaluation of four tax reforms in the United States: Labor supply and welfare effects for single mothers," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 795-816, April.
    15. 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.
    16. 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.
    17. Haveman, Robert & Scolex, John Karl, 1994. "Transfers, Taxes, and Welfare Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(2), pages 417-434, June.
    18. 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;International Institute of Public Finance, vol. 7(1), pages 63-82, February.
    19. Robert Shelburne, 2006. "A Utilitarian Welfare Analysis of Trade Liberalization," ECE Discussion Papers Series 2006_4, UNECE.
    20. 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.
    21. 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.
    22. Jonathan R. Kesselman, 1992. "Income Security via the Tax System: Canadian and American Reforms," NBER Chapters,in: Canada-U.S. Tax Comparisons, pages 97-150 National Bureau of Economic Research, Inc.
    23. Haveman, Robert & Scolex, John Karl, 1994. "Transfers, Taxes, and Welfare Reform," National Tax Journal, National Tax Association, vol. 47(2), pages 417-34, June.

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