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How Does Predistribution Affect Redistribution?

Author

Listed:
  • Ravi Kanbur

    (Cornell University)

  • Matti Tuomala

    (Tampere University and Finnish Centre of Excellence in Tax Systems Research (FIT))

Abstract

This paper presents an analysis of the consequences for redistribution policies of achieving a more equal predistribution, that is, a more equal distribution of the predetermined income earning capabilities that individuals bring to the market. We show that optimal fiscal policies are less redistributive when the predistribution is more equal. We then quantify the value of a more equal predistribution. We show that total consumption is higher with a more equal predistribution. We also develop a money metric measure of social welfare and show that a more equal predistribution increases this measure for a Utilitarian and Prioritarian Social Welfare Function but may decrease it for the Maximin.

Suggested Citation

  • Ravi Kanbur & Matti Tuomala, 2024. "How Does Predistribution Affect Redistribution?," Working Papers 19, Finnish Centre of Excellence in Tax Systems Research.
    • Handle: RePEc:fit:wpaper:19
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    References listed on IDEAS

    as
    1. Momi Dahan & Michel Strawczynski, 2012. "The Optimal Asymptotic Income Tax Rate," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(5), pages 737-755, October.
    2. Atkinson, A. B., 1996. "Public Economics in Action: The Basic Income/Flat Tax Proposal," OUP Catalogue, Oxford University Press, number 9780198292166, Decembrie.
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    5. Revesz, John T, 1989. "The Optimal Taxation of Labour Income," Public Finance = Finances publiques, , vol. 44(3), pages 453-475.
    6. Tuomala, Matti, 2016. "Optimal Redistributive Taxation," OUP Catalogue, Oxford University Press, number 9780198753414, Decembrie.
    7. Pertti Haaparanta & Ravi Kanbur & Tuuli Paukkeri & Jukka Pirttilä & Matti Tuomala, 2022. "Promoting education under distortionary taxation: equality of opportunity versus welfarism," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(2), pages 281-297, June.
    8. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
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    More about this item

    Keywords

    Predistribution; Redistribution; Optimal Non-linear Taxation; Marginal Tax Rates; Social Welfare Function;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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