I am grateful for the helpful comments of Arthur Snow and three anonymous referees.
Redistributing Income and Relative Efficiency
Article first published online: 26 MAR 2007
Volume 41, Issue 3, pages 480–495, July 2003
How to Cite
Allgood, S. (2003), Redistributing Income and Relative Efficiency. Economic Inquiry, 41: 480–495. doi: 10.1093/ei/cbg022
- Issue published online: 26 MAR 2007
- Article first published online: 26 MAR 2007
This article considers the relative efficiency of marginally redistributing income from high- to low-income households. Additional spending on a negative income tax is compared with spending on an earnings or a wage subsidy. One set of reforms imposes the same burden on the nonpoor, and another set redistributes the same net benefit to the working poor. Additional spending on a negative income tax is more efficient than spending a similar amount on an earnings subsidy (the Earned Income Tax Credit), for some reforms and parameters. The wage subsidy is the most efficient, independent of parameters or type of reform.