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Pareto Efficiency, Inequality and Distribution Neutral Fiscal Policy - An Overview

Author

Listed:
  • Sugata Marjit

    (Reserve Bank of India Professor of Industrial Economics, Centre for Studies in Social Sciences, Calcutta(CSSSC).)

  • Anjan Mukherji

    (Professor Emeritus, Centre for Economic Studies and Planning, JawaharlalNehru University, New Delhi.)

  • Sandip Sarkar

    (CTRPFP, Centre for Studies in Social Sciences, Calcutta.)

Abstract

A structure of taxes and transfers that keep the income distribution unchanged even after positive or negative shocks to an economy, is referred as a Distribution Neutral Fiscal Policy. Marjit and Sarkar (2017) referred this as a Strong Pareto Superior (SPS) allocation which improves the standard Pareto criterion by keeping the degree of inequality, not the absolute level of income, intact. In this paper we show the existence of a SPS allocation in a general equilibrium framework, and we provide a brief survey of distribution neutral fiscal policies existing in the literature. We also provide an empirical illustration with Indian Human Development Survey data.

Suggested Citation

  • Sugata Marjit & Anjan Mukherji & Sandip Sarkar, 2018. "Pareto Efficiency, Inequality and Distribution Neutral Fiscal Policy - An Overview," Discussion Papers Series 590, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uq2004:590
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    File URL: http://www.uq.edu.au/economics/abstract/590.pdf
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    References listed on IDEAS

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    1. Mandler, Michael, 1999. "Simple Pareto-Improving Policies," Journal of Economic Theory, Elsevier, vol. 84(1), pages 120-133, January.
    2. T. de Scitovszky, 1941. "A Note on Welfare Propositions in Economics," Review of Economic Studies, Oxford University Press, vol. 9(1), pages 77-88.
    3. Sugata Marjit & Amlan Majumder & Sandip Sarkar & Lei Yang, 2020. "Inequality Convergence and Distribution Neutral Fiscal Policy," CESifo Working Paper Series 8119, CESifo.
    4. Sanjeev Gupta & Sugata Marjit & Sandip Sarkar, 2018. "An Application of Distribution-Neutral Fiscal Policy," IMF Working Papers 2018/012, International Monetary Fund.
    5. L. R. Jain & Suresh D. Tendulkar, 1990. "Role of Growth and Distribution in the Observed Change in Headcount Ratio Measure of Poverty: A Decomposition Exercise for India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 25(2), pages 165-205, July.
    6. Sugata Marjit & Sandip Sarkar, 2017. "Distribution-neutral Welfare Ranking-Extending Pareto Principle," CESifo Working Paper Series 6397, CESifo.
    7. Richard Cornes & Todd Sandler, 2000. "Pareto‐Improving Redistribution and Pure Public Goods," German Economic Review, Verein für Socialpolitik, vol. 1(2), pages 169-186, May.
    8. Sanjeev Gupta & Sugata Marjit & Sandip Sarkar, 2018. "An Application of Distribution-Neutral Fiscal Policy," IMF Working Papers 18/12, International Monetary Fund.
    9. Anthony Shorrocks, 2013. "Decomposition procedures for distributional analysis: a unified framework based on the Shapley value," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(1), pages 99-126, March.
    10. Ravallion, Martin & Chen, Shaohua, 2003. "Measuring pro-poor growth," Economics Letters, Elsevier, vol. 78(1), pages 93-99, January.
    11. Sugata Marjit & Lei Yang, 2017. "Trade, Inequality and Distribution-Neutral Fiscal Policy - An Elementary Framework," CESifo Working Paper Series 6474, CESifo.
    12. Kraay, Aart, 2006. "When is growth pro-poor? Evidence from a panel of countries," Journal of Development Economics, Elsevier, vol. 80(1), pages 198-227, June.
    13. Datt, Gaurav & Ravallion, Martin, 1992. "Growth and redistribution components of changes in poverty measures : A decomposition with applications to Brazil and India in the 1980s," Journal of Development Economics, Elsevier, vol. 38(2), pages 275-295, April.
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    Cited by:

    1. Santhanakrishnan, Deepika, 2020. "An interim note on SPS allocation," MPRA Paper 102784, University Library of Munich, Germany.

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    More about this item

    Keywords

    Pareto Superiority; Strong Pareto Superiority; Inequality;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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