Redistribution of income and wealth
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Redistribution of income and wealth or redistribution of wealth is the transfer of income, wealth or property from some individuals to others caused by a social mechanism such as taxation, monetary policies, welfare, charity, divorce or tort law. The desirability and effects of redistribution are actively debated on ethical and economic grounds. The subject includes analysis of its rationales, objectives, means, and policy effectiveness.
Types of redistribution
Today, income redistribution occurs in some form in most democratic countries. In a progressive income tax system, a high income earner will pay a higher tax rate than a low income earner. The difference between the Gini index for an income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation.
Two common types of governmental redistribution of wealth are subsidies and vouchers (such as food stamps). These "transfer payment" programs are funded through general taxation, but benefit the poor, who pay fewer or no taxes. While the persons receiving transfers from such programs may prefer to be directly given cash, these programs may be more palatable to society, as it gives society some measure of control over how the funds are spent.
The objectives of income redistribution are varied and almost always include the funding of public services. Supporters of redistributive policies argue that less stratified economies are more socially just.
One basis for redistribution is the concept of distributive justice, whose premise is that money and resources ought to be distributed in such a way as to lead to a socially just, and possibly more financially egalitarian society. Another argument is that a larger middle class benefits an economy by enabling more people to be consumers, while providing equal opportunities for individuals to reach a better standard of living. Seen for example in the work of John Rawls, another argument is that a truly fair society would be organized in a manner benefiting the least advantaged, and any inequality would be permissible only to the extent that it benefits the least advantaged.
Some proponents of redistribution argue that capitalism results in an externality that creates unequal wealth distribution. Studies show that a lower rate of redistribution in a given society increases the inequality found among future incomes, due to restraints on wealth investments in both human and physical capital.
Some[who?] argue that wealth and income inequality are a cause of economic crises, and that reducing these inequalities is one way to prevent or ameliorate economic crises, with redistribution thus benefiting the economy overall. This view was associated with the underconsumptionism school in the 19th century, now considered an aspect of some schools of Keynesian economics; it has also been advanced, for different reasons, by Marxian economics. It was particularly advanced in the US in the 1920s by Waddill Catchings and William Trufant Foster.
One is the social welfare function, or the concept that society’s utility is made up in some way through the utilities of its individuals. The 'Max-Min' or 'Maximin Criterion' for social welfare explains this concept:
This states that the utility of society (W) is dependent on that of the least (min) individual (Yi), or in terms of income, the poorest individual.
Using statistics from 23 developed countries and the 50 states of the US, British researchers Richard G. Wilkinson and Kate Pickett show a correlation between income inequality and higher rates of health and social problems (obesity, mental illness, homicides, teenage births, incarceration, child conflict, drug use), and lower rates of social goods (life expectancy, educational performance, trust among strangers, women's status, social mobility, even numbers of patents issued per capita), on the other. The authors argue inequality leads to the social ills through the psychosocial stress, status anxiety it creates.
A 2011 report by the International Monetary Fund by Andrew G. Berg and Jonathan D. Ostry found a strong association between lower levels of inequality and sustained periods of economic growth. Developing countries (such as Brazil, Cameroon, Jordan) with high inequality have "succeeded in initiating growth at high rates for a few years" but "longer growth spells are robustly associated with more equality in the income distribution."
- "Redistribution". Stanford Encyclopedia of Philosophy. Stanford University. 2 July 2004. Retrieved 13 August 2010. "The social mechanism, such as a change in tax laws, monetary policies, or tort law, that engenders the redistribution of goods among these subjects"
- F.A. Cowell ( 2008). "redistribution of income and wealth,"The New Palgrave Dictionary of Economics, 2nd Edition, TOC.
- Rugaber, Christopher S.; Boak, Josh (January 27, 2014). "Wealth gap: A guide to what it is, why it matters". AP News. Retrieved January 27, 2014.
- Harvey S. Rosen & Ted Gayer, Public Finance pp. 271–72 (2010).
- Redistribution (Stanford Encyclopedia of Philosophy)
- Marx, K. A Contribution to the Critique of Political Economy. Progress Publishers, Moscow, 1977
- http://www.jstor.org/stable/117283 Unequal Societies: Income Distribution and the Social Contract.
- (Dorfman 1959)
- Allgoewer, Elisabeth (May 2002). "Underconsumption theories and Keynesian economics. Interpretations of the Great Depression". Discussion paper no. 2002-14.
- Statistics and graphs from Wilkinson and Pickett research.
- The Spirit Level: how 'ideas wreckers' turned book into political punchbag| Robert Booth| The Guardian| 13 August 2010
- Inequality and Unsustainable Growth: Two Sides of the Same Coin? Andrew G. Berg and Jonathan D. Ostry| IMF STAFF DISCUSSION NOTE | April 8, 2011
- Berg, Andrew G.; Ostry, Jonathan D. (2011). "Equality and Efficiency". Finance and Development (International Monetary Fund) 48 (3). Retrieved September 10, 2012.