Distributional Objectives Should Affect Taxes But Not Program Choice or Design
A society can redistribute income through the tax system, and through the choice and design of government programs. Neither type of redistribution is as efficient as lump-sum transfers would be, if feasible. In practice, however, both taxes and government programs serve redistributional goals. The question becomes how best to integrate them to achieve an optimal outcome, maximizing the redistributional effect for a given efficiency cost. The following conclusions are reached. If total benefits are independent of the income distribution and relative benefits are determined by before or after-tax income, those projects that yield the greatest total of unweighted benefits across the population should be selected. If benefits depend on the distribution of income, the optimal program will be one which produces maximal net benefits at the income distribution which is being induced. Redistribution is a concern, but is carried out solely through the tax system.
KeywordsMigration Income Parkin Blindness
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