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Why World Redistribution Fails

Author

Listed:
  • Wojciech Kopczuk
  • Joel Slemrod
  • Shlomo Yitzhaki

Abstract

An optimal linear world income tax that maximizes a border-neutral social welfare function provides a drastic reduction in world consumption inequality, dropping the Gini coefficient from 0.69 to 0.25. In contrast an optimal decentralized (i.e., within countries) redistribution has miniscule effect on world income inequality. Thus, the traditional public finance concern about the excess burden of redistribution cannot explain why there is so little world redistribution. Actual foreign aid is vastly lower than the transfers under the simulated world income tax, suggesting that countries such as the United States either place a much lower value on the welfare of foreigners or else expect that a very significant fraction of cross-border transfers is wasted. The product of the welfare weight and one minus the share of transfers that are wasted constitutes an implied weight that the United States assigns to foreigners. We calculate that value to be as low as 1/2000 of the value put on the welfare of an American, suggesting that U.S. policy implicitly assumes either that essentially all transfers are wasted or places essentially no value on the welfare of the citizens of the poorest countries.

Suggested Citation

  • Wojciech Kopczuk & Joel Slemrod & Shlomo Yitzhaki, 2002. "Why World Redistribution Fails," NBER Working Papers 9186, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9186
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    References listed on IDEAS

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    Cited by:

    1. Kopczuk, Wojciech & Slemrod, Joel & Yitzhaki, Shlomo, 2005. "The limitations of decentralized world redistribution: An optimal taxation approach," European Economic Review, Elsevier, vol. 49(4), pages 1051-1079, May.
    2. Heshmati, Almas, 2004. "The World Distribution of Income and Income Inequality," IZA Discussion Papers 1267, Institute for the Study of Labor (IZA).
    3. Rodrik, Dani, 2017. "Is Global Equality the Enemy of National Equality?," CEPR Discussion Papers 11812, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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