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The big trade-off between efficiency and equity—is it there?

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  • Torben M Andersen
  • Jonas Maibom

Abstract

Widely quoted cross-country evidence finds income to be negatively associated with inequality, suggesting the absence of a trade-off between efficiency and equity. Such evidence implicitly assumes that all countries are at the frontier in an efficiency–equity space. We refute this for most OECD countries, and find a best-practice frontier displaying a trade-off. In accordance with standard economic theory, a larger tax burden is associated with lower efficiency and more equity. Interestingly, the trade-off has not become steeper over the sample period 1970–2014. Country positions differ significantly with some being consistently at the frontier, while others are well inside the opportunity set.

Suggested Citation

  • Torben M Andersen & Jonas Maibom, 2020. "The big trade-off between efficiency and equity—is it there?," Oxford Economic Papers, Oxford University Press, vol. 72(2), pages 391-411.
    • Handle: RePEc:oup:oxecpp:v:72:y:2020:i:2:p:391-411.
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    File URL: http://hdl.handle.net/10.1093/oep/gpz040
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    Cited by:

    1. Stavros A. Drakopoulos, 2024. "Value Judgements, Positivism and Utility Comparisons in Economics," Journal of Business Ethics, Springer, vol. 189(3), pages 423-437, January.
    2. Hans Pitlik & Margit Schratzenstaller, 2022. "Kurzexpertise zu Abgabensystem und Ausgabenstrukturen im internationalen Vergleich. Ausgangssituation und Reformbedarf," WIFO Studies, WIFO, number 67988.

    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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