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This paper, prepared for the Handbook of Income Distribution (edited by A.B. Atkinson and F. Bourguignon), reviews some of the central issues that arise in thinking about the motives for, politics of, constraints on and measurement of, redistribution. Amongst the themes are: the potential usefulness of apparently inefficient policy instruments in overcoming the self-selection constraints on redistribution and limiting the damage that ill-intentioned policymakers can do; the continued (perhaps increased) ignorance as to the effective incidence of many key taxes and benefits; and, while there are circumstances in which redistribution may plausibly generate efficiency gains, the likelihood that some trade-off between equity and efficiency is inescapable.

Jeffrey Miron


This article appeared on Substack on June 19, 2023
A common view attributes economic inequality to the evils of markets—greed, corruption, family connections, luck, and so on—rather than to differences in economic productivity.
Some wealth is no doubt "ill‐​gotten," or at least not directly related to one's own contribution to the economic pie.
Yet many differences in economic success result from government interventions that create winners and losers, and in arbitrary or even perverse ways.
Government licenses to become a lawyer, doctor, hair braider, plumber, or other professional raise the income of those who obtain these licenses, regardless of whether more talented.
Zoning regulation protects the wealth of those lucky enough to have bought land before such restrictions existed.
Much regulation, of all kinds, imposes substantial fixed costs. Larger firms more easily absorb these, while small firms face a greater barrier to entry. Regulation also creates the opportunity for less principled businesses to game the system, implying honest firms lose out.
When governments build schools, roads, hospitals, office buildings, military equipment, and other infrastructure, they contract out with private firms. Ideally government chooses the most efficient firm, but in practice cronyism and corruption play substantial roles.
Restrictive immigration policies prevent people in poor countries from earning substantially higher wages.
Medicare reimbursement rules reward less scrupulous health care providers, who manipulate billing codes to maximize their revenues.
Taxpayer‐​funded universities transfer wealth to families with more college‐​bound children.
Government protections for unions raise member wages but cause others to be underemployed. Minimum wage laws have similar effects.
Rent controls discourage construction of new housing, raising costs for those who fail to secure controlled apartments.
The corporate income tax penalizes not just shareholders but customers and employees, who are often less well off.
Progressive or complicated tax codes create lucrative incomes for the lawyers and accountants who help individuals and businesses avoid or evade these features.
I could go on, but you get the point!
The fact that government causes these arbitrary redistributions is not, by itself, reason to avoid all intervention. If a policy generates large benefits, any resulting mal‐​distribution might be a necessary evil.
In a few cases, moreover, redistribution is the flip side of a potentially beneficial effect. Patents and copyright create monopoly profits that incentivize innovative or creative activity, perhaps benefitting society overall.
Nevertheless, policy evaluations should recognize the scope for arbitrary redistribution as one negative side effect of interfering with free markets.
Likewise, any discussion of redistribution should recognize that government, rather than the free market, is often the bigger offender.

There are many well-developed theories that explain why governments redistribute income, but very few can explain why this often is done in a socially inefficient form. In the theory we develop, compared to efficient methods, inefficient redistribution makes it more attractive to stay in or enter a group that receives subsidies. When political institutions cannot credibly commit to future policy, and when the political influence of a group depends on its size, inefficient redistribution is a tool to sustain political power. Our model may account for the choice of inefficient redistributive policies in agriculture, trade, and the labor market. It also implies that when factors of production are less specific to a sector, inefficient redistribution may be more prevalent.

There are many well-developed theories that explain why governments redistribute income, but very few can explain why this often is done in a socially inefficient form. In the theory we develop, compared to efficient methods, inefficient redistribution makes it more attractive to stay in or enter a group that receives subsidies. When political institutions cannot credibly commit to future policy, & when the political influence of a group depends on its size, inefficient redistribution is a tool to sustain political power. Our model may account for the choice of inefficient redistributive policies in agriculture, trade, & the labor market. It also implies that when factors of production are less specific to a sector, inefficient redistribution may be more prevalent. 75 References. Adapted from the source document.

Notices, advertisements and media releases. Invitation for suggestions. Invitation for comments on suggestions. Invitation for objections on proposed redistribution. Augmented Redistribution Committee, appointment of member. Consultations with the Augmented Redistribution Committee. Redistribution declaration notice. ; Chairperson of Augmented Redistribution Committee: Barry Chambers.

In this paper we deal with voluntary and compulsory redistribution in an economy where the enforcement of property rights is costly. Two agents engage in a common-pool contest and two types of potential distortions arise: the waste of resources in the contest and the dilution of incentives to produce as a result of the existens of externalities in the conflict equilibrium. We were able to show the following results: (i) In some situations Pareto-improving redistribution occurs voluntarily. (ii) Otherwise, the government may choose an indirect way to improve production in the presence of appropriation: In a situation of partial anarchy in some market redistributive policies in other markets may help to reduce the inefficiency in the anarchic market.

We study a model with majority voting on redistribution in which agents differ in their skills and their preferences for leisure. Redistribution is generous and average labor supply low if the decisive voter has relatively strong preferences for leisure, while redistribution is limited and average labor supply high if the decisive voter has relatively weak preferences for leisure. Given differences in the preference distributions due to cultural differences or positive complementarities in leisure, our model thus provides an explanation for the substantial differences in redistribution and average working hours between the United States and continental Western Europe. [Copyright 2008 Elsevier B.V.]

Recent development literature has placed priority on poverty reduction, and on possible growth enhancement from a more equal distribution of assets and income. At the same time, empirical work consistently shows that economic growth is no more than distribution neutral. In that context, this paper explores the relationship among growth, inequality and poverty, and demonstrates the following general conclusions: 1) a redistributive growth path is always likely to be superior to a distribution neutral path ('trickle down') for reducing poverty; 2) a redistributive growth path is always superior if a country's per capita income and inequality are relatively high; and 3) a static redistribution from the rich to the poor is superior to a redistributive growth path in its effect on poverty for most countries, but not for all. The paper then considers policy that might be used to make growth more equitable. – poverty ; inequality ; growth ; redistribution

Why do governments redistribute through indirect and inefficient means? An intuitive hypothesis is that it masks the real aim and cost of policy. In this paper we construct a dynamic model with an infinite horizon, political competition, rational individuals and asymmetric information regarding the efficiency of policy and politicians' preferences to test this hypothesis. While the previous (formal) literature explains one-time projects like the building of a dam, bridge or an airport, we are able to explain the persistent use of inefficient means like regulation and subsidies for redistributive purposes.

This paper models the interaction between individuals' identity choices and redistribution. Both redistributive policies and identity choices are endogenous, and there might be multiple equilibria. The model is applied to ethnicity and social class. In an equilibrium with high taxes, the poor identify as poor and favor high taxes. In an equilibrium with low taxes, at least some of the poor identify with their ethnic group and favor low taxes. The model predicts that redistribution is highest when society is ethnically homogeneous, but the effect of ethnic diversity on redistribution is not necessarily monotonic. Adapted from the source document.