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Can Equity and Efficiency Complement Each Other?

  • Rebecca M. Blank

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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File URL: http://www.nber.org/papers/w8820.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8820.

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Date of creation: Feb 2002
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Publication status: published as Blank, Rebecca M. "Can Equity And Efficiency Complement Each Other?" Labour Economics, September 2002, 9(4): 451-468
Handle: RePEc:nbr:nberwo:8820
Note: LS PE
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  1. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May.
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  10. Garces, E. & Thomas, D. & Currie, J., 2000. "Longer Term Effects of Head Start," Papers 00-20, RAND - Labor and Population Program.
  11. Gary Burtless, 1986. "The work response to a guaranteed income: a survey of experimental evidence," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 30, pages 22-59.
  12. Bruce D. Meyer & Dan T. Rosenbaum, 1998. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," JCPR Working Papers 32, Northwestern University/University of Chicago Joint Center for Poverty Research.
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  15. Schoeni, R-F, 1996. "Does Aid to Families with Dependent Children Displace Familial Assistance?," Papers 96-12, RAND - Labor and Population Program.
  16. repec:mpr:mprres:2952 is not listed on IDEAS
  17. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, vol. 72(2), pages 372-77, May.
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