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The tragedy (or virtue?) of in-kind redistribution: How the poor pays for the rich's status concerns

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  • Jan Schumacher

Abstract

The model describes a two person economy, in which one individual with positive exogenous income is altruist towards an individual with no income. The rich individual cares for her own social status. She evaluates her status by comparing disposable net cash incomes. When deciding on the size and on the structure of redistribution, the rich person decides that at least part of the redistribution is done in–kind, even if a private substitute for the publicly provided good is available. The amount of in–kind transfers that is provided exceeds the unconstrained Marshallian demand of the poor individual for the good in question. Hence, optimal policy restricts the poor in his allocative choices. The overall resource transfer is lower when the richer cares for her status compared to a situation in which she does not.

Suggested Citation

  • Jan Schumacher, 2008. "The tragedy (or virtue?) of in-kind redistribution: How the poor pays for the rich's status concerns," Working Papers 039, Bavarian Graduate Program in Economics (BGPE).
  • Handle: RePEc:bav:wpaper:039_schumacher
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    File URL: http://www.bgpe.de/texte/DP/039_schumacher.pdf
    File Function: First version, 2008
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    References listed on IDEAS

    as
    1. Gahvari, Firouz, 1994. "In-kind transfers, cash grants and labor supply," Journal of Public Economics, Elsevier, vol. 55(3), pages 495-504, November.
    2. Benno Torgler & Sascha L. Schmidt & Bruno S. Frey, 2006. "Relative Income Position and Performance: An Empirical Panel Analysis," CREMA Working Paper Series 2006-03, Center for Research in Economics, Management and the Arts (CREMA).
    3. Gasparini, Leonardo C. & Pinto, Santiago M., 2006. "Equality of opportunity and optimal cash and in-kind policies," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 143-169, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Redistribution; in–kind transfers; altruism; status;

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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