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

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  • Andersen, Torben M
  • Maibom, Jonas

Abstract

Widely quoted cross-country evidence finds income to be negatively associated with inequality, which suggests that there is no trade-off between efficiency and equity. Such inference presumes that countries are at the frontier in the efficiency-equity space. We refute this for most OECD countries, and find that the best-practice frontier displays a trade-off. In accordance with standard economic theory, a larger tax burden is associated with lower efficiency and more equity. Interestingly, there is no evidence that the trade-off has become steeper over the sample period 1980-2010. Country positions differ significantly with some being consistently at or close to the frontier, while others are well inside the opportunity set.

Suggested Citation

  • Andersen, Torben M & Maibom, Jonas, 2016. "The big trade-off between efficiency and equity - is it there?," CEPR Discussion Papers 11189, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11189
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    Cited by:

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    2. Emil Evenhuis & Neil Lee & Ron Martin & Peter Tyler, 2021. "Rethinking the political economy of place: challenges of productivity and inclusion," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 14(1), pages 3-24.
    3. João Tovar Jalles & Luiz de Mello, 2019. "Cross‐country evidence on the determinants of inclusive growth episodes," Review of Development Economics, Wiley Blackwell, vol. 23(4), pages 1818-1839, November.
    4. Pantelis C. Kostis, 2022. "Economic Development and Performance of Eurozone Economies: The Growing Imbalances During the Crisis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(2), pages 1056-1075, June.
    5. Kovács, Olivér, 2017. "Az ipar 4.0 komplexitása - I [The complexity of industry 4.0 - Part 1]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 823-851.
    6. Beck, Roland & Di Nino, Virginia & Stracca, Livio, 2021. "Globalisation and the efficiency-equity trade-off," Working Paper Series 2546, European Central Bank.
    7. Orsetta Causa & Mikkel Hermansen, 2018. "Income Redistribution Through Taxes and Transfers across OECD Countries," LIS Working papers 729, LIS Cross-National Data Center in Luxembourg.
    8. Orsetta Causa & Mikkel Hermansen, 2017. "Income redistribution through taxes and transfers across OECD countries," OECD Economics Department Working Papers 1453, OECD Publishing.
    9. Christine Mayrhuber & Matthias Firgo & Hans Pitlik & Alois Guger & Ewald Walterskirchen, 2018. "Sozialstaat und Standortqualität," WIFO Studies, WIFO, number 61006.
    10. Feld Lars P. & Schmidt Christoph M., 2016. "Jenseits der schrillen Töne: Elemente für eine rationale Diskussion über die Ungleichheit von Einkommen und Vermögen in Deutschland," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(2), pages 188-205, July.
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    More about this item

    Keywords

    Efficiency; Equity; Trade-off;
    All these keywords.

    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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