A Theory of the Welfare State
The welfare state can be seen as an insurance device that makes lifetime careers safer, increases risk taking and suffers from moral hazard effects. Adopting this view, the paper studies the trade-off between average income and inequality, evaluating redistributive equilibria from an allocative point of view. It identifies the properties of an optimal welfare state and shows that constant returns to risk taking are likely to imply a redistribution paradox where more redistribution results in more inequality. In general, optimal taxation will either imply that the redistribution paradox is present or that the economy operates at a point of its efficiency frontier where more inequality implies a lower average income.
|Date of creation:||Sep 1994|
|Date of revision:|
|Publication status:||published as Scandinavian Journal of Economics, Vol. 97, 1995, pp. 495-526.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sinn, Hans-Werner, 1989.
"Two-Moment Decision Models and Expected Utility Maximization: Comment,"
American Economic Review,
American Economic Association, vol. 79(3), pages 601-02, June.
- Sinn, Hans-Werner, 1989. "Two-Moment Decision Models and Expected Utility Maximization: Comment," Munich Reprints in Economics 19848, University of Munich, Department of Economics.
- Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
- John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, vol. 61, pages 434.
- Diamond, P. A. & Helms, L. J. & Mirrlees, J. A., 1980.
"Optimal taxation in a stochastic economy : A Cobb-Douglas example,"
Journal of Public Economics,
Elsevier, vol. 14(1), pages 1-29, August.
- P. Diamond & J. Helms & J. Mirrlees, 1978. "Optimal Taxation in a Stochastic Economy: A Cobb-Douglas Example," Working papers 217, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jonathan Eaton & Harvey S. Rosen, 1979.
"Taxation, Human Capital and Uncertainty,"
497, Princeton University, Department of Economics, Industrial Relations Section..
- Joseph E. Stiglitz, 1968.
"The Effects of Income, Wealth, and Capital Gains Taxation on Risk Taking,"
Cowles Foundation Discussion Papers
248, Cowles Foundation for Research in Economics, Yale University.
- J. E. Stiglitz, 1969. "The Effects of Income, Wealth, and Capital Gains Taxation on Risk-Taking," The Quarterly Journal of Economics, Oxford University Press, vol. 83(2), pages 263-283.
- Levy, Haim, 1989. "Two-Moment Decision Models and Expected Utility Maximization: Comment," American Economic Review, American Economic Association, vol. 79(3), pages 597-600, June.
- Ahsan, Syed M, 1974. "Progression and Risk-Taking," Oxford Economic Papers, Oxford University Press, vol. 26(3), pages 318-28, November.
- Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
- Milton Friedman, 1953. "Choice, Chance, and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 61, pages 277.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4856. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.