Redistribution of income and wealth
Redistribution of income and redistribution of wealth are respectively the transfer of income and of wealth (including physical property) from some individuals to others by means of a social mechanism such as taxation, monetary policies, welfare, land reform, charity, confiscation, divorce or tort law. The term typically refers to redistribution on an economy-wide basis rather than between selected individuals, and it always refers to redistributions from those who have more to those who have less.
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. A 2003 survey among American economists found that 71.2% of them support redistribution, while 20.4% oppose it, 7.2% had mixed feelings.
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. Another taxation-based method of redistributing income is the negative income tax.
Two other common types of governmental redistribution of income 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 than cash assistance, as they give society some measure of control over how the funds are spent.
Wealth redistribution can be implemented through land reform that transfers ownership of land from one category of people to another, or through inheritance taxes or direct wealth taxes. Before-and-after Gini coefficients for the distribution of wealth can be compared.
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. There is currently a great debate concerning the extent to which the world's extremely rich have become richer over recent decades. Thomas Piketty's Capital in the Twenty-First Century is at the forefront, critiqued in certain publications such as The Economist.
One way of measuring societal well-being is the social welfare function, or the concept that society’s utility is made up in some way through the utilities of its individuals. At one polar extreme of the possible social welfare functions is the 'min-max' or 'minimax' function:
This states that the welfare (utility) W of society is dependent solely on the welfare YI of the lowest-welfare individual (Yi), or in terms of income, the income of the lowest-income individual.
Economic effects of inequality
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."
The socialist economists John Roemer and Pranab Bardhan criticize redistribution through taxation in the context of Nordic-style social democracy, pointing out limits to its effectiveness in promoting relative egalitarianism. They point out that social democracy requires a strong labor movement to sustain its heavy redistribution, and that it is idealistic to think such redistribution can be accomplished in other countries with weaker labor movements. They note that even in Scandinavian countries social democracy has been in decline as the labor movement weakened, arguing that an emphasis on changing enterprise ownership and market socialism is more effective than redistribution at promoting egalitarianism.
Marxian economists argue that social democratic reforms - including policies to redistribute income - such as unemployment benefits and high taxes on profits and the wealthy create more contradictions in capitalism by further limiting the efficiency of the capitalist system via reducing incentives for capitalists to invest in further production. In the Marxist view, redistribution cannot resolve the fundamental issues of capitalism - only a transition to a socialist economy can.
- "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
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- Famine, Affluence, and Morality
- Fighting Poverty
- 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
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- Market socialism, a case for rejuvenation, by Pranab Bardhan and Johen E. Roemer. 1992. Journal of Economic Perspectives, Vol. 6, No. 3, pp. 104: "Since it (social democracy) permits a powerful capitalist class to exist (90 percent of productive assets are privately owned in Sweden), only a strong and unified labor movement can win the redistribution through taxes that is characteristic of social democracy. It is idealistic to believe that tax concessions of this magnitude can be effected simply through electoral democracy without an organized labor movement, when capitalists organize and finance influential political parties. Even in the Scandinavian countries, strong apex labor organizations have been difficult to sustain and social democracy is somewhat on the decline now."
- Market Socialism: The Debate Among Socialists, by Schweickart, David; Lawler, James; Ticktin, Hillel; Ollman, Bertell. 1998. (P.60-61): "The Marxist answers that...it involves limiting the incentive system of the market through providing minimum wages, high levels of unemployment insurance, reducing the size of the reserve army of labour, taxing profits, and taxing the wealthy. As a result, capitalists will have little incentive to invest and the workers will have little incentive to work. Capitalism works because, as Marx remarked, it is a system of economic force (coercion)."
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- Small calculus of inequality measures