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The Difficulty of Income Redistribution with Labour Supply

Author

Listed:
  • Udo Ebert

    (University of Oldenburg)

  • Patrick Moyes

    (CNRS, IDEP, and GRAPE, Université Montesquieu Bordeaux IV)

Abstract

Two common principles in distributional analysis are that (i) a progressive transfer moves the Lorenz curve upwards, and (ii) progressive [neutral] taxation reduces [leaves unchanged] inequality. In order to establish these results it is currently assumed that the distribution of income is exogenously given. The relevance of these results is therefore limited in practice where incomes are determined by the working decisions of the agents in the economy. Considering a simple economy with two goods and two agents we indicate sufficient conditions for inequality in net income to decrease as a result of rich to poor transfers or progressive taxation. By means of simple examples we show that, when one incorporates labour supply responses, the fulfillment of these conditions is highly hypothetical and that everything can happen.

Suggested Citation

  • Udo Ebert & Patrick Moyes, 2003. "The Difficulty of Income Redistribution with Labour Supply," Economics Bulletin, AccessEcon, vol. 8(2), pages 1-9.
    • Handle: RePEc:ebl:ecbull:eb-02h20004
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    References listed on IDEAS

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    1. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    2. Jakobsson, Ulf, 1976. "On the measurement of the degree of progression," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 161-168.
    3. Ebert, Udo, 1988. "A Family of Aggregative Compromise Inequality Measures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(2), pages 363-376, May.
    4. Amiel,Yoram & Cowell,Frank, 1999. "Thinking about Inequality," Cambridge Books, Cambridge University Press, number 9780521466967, October.
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    Cited by:

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    2. Markina Oksana, 2022. "Taxation, Inequality, and Poverty: Evidence from Ukraine," Central European Economic Journal, Sciendo, vol. 9(56), pages 1-18, January.

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    More about this item

    Keywords

    Endogenous labour supply;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D6 - Microeconomics - - Welfare Economics

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