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Redistributing Income and Relative Efficiency


  • Sam Allgood

    1. Associate Professor, Department of Economics, University of Nebraska, Lincoln, NE 68588–0489. Phone 1–402–472–3367, Fax 1–402–472–9700, E-mail
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      I am grateful for the helpful comments of Arthur Snow and three anonymous referees.


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.

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