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Can equity and efficiency complement each other?

  • Blank, Rebecca M.

Economists tend to assume that redistributive transfers increase equity but cause a loss in efficiency, the so-called 'leaky bucket' effect. This paper explores situations where efficiency losses are small or where equity and efficiency might even complement each other. A simple model identifies key parameters that cause leaky buckets and which policy can affect. Three situations are discussed where the equity/efficiency tradeoff may be low: When transfers go to populations with no capacity to change their behavior; when transfers go to programs that limit efficiency losses through behavioral requirements; and when commodities are subsidized that function as long-term investments and create future income gains.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 9 (2002)
Issue (Month): 4 (September)
Pages: 451-468

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Handle: RePEc:eee:labeco:v:9:y:2002:i:4:p:451-468
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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