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Measuring the benefit from reducing income inequality in terms of GDP

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  • Voigts, Simon

Abstract

Given that well-being is a concave function of income, inequality is inefficient from a utilitarian perspective. This paper proposes a way to express the utilitarian benefit from redistributive reforms in terms of out- put, i.e. as a share of GDP. Three applications are presented: First, in nine European countries under study, a mild increase in government redis- tribution allows for gains in well-being equivalent to 8.9%-20.2% of higher GDP, and 55.8% for the US. Second, in the US, redistributing income in excess of the level at the 99th percentile is as beneficial as a 39.5% GDP-increment. Third, revoking government redistribution in Germany reduces welfare by the same amount as a 25.4% decline in output.

Suggested Citation

  • Voigts, Simon, 2016. "Measuring the benefit from reducing income inequality in terms of GDP," SFB 649 Discussion Papers 2016-008, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2016-008
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    References listed on IDEAS

    as
    1. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
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    Keywords

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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