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In Search of a Paradox of Redistribution Analysis of Fiscal Redistribution in High-Income Countries

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  • David Coady

Abstract

The last decade has seen a sharp increase in interest in the possible existence of a Paradox of Redistribution (PoR) whereby narrow targeting of social transfers aimed at increasing their redistributive (poverty) impact has the perverse effect of increasing poverty over the medium term due to decreasing public support for such spending. However, empirical support for the existence of a PoR has been mixed. We revisit this issue using harmonized LIS household survey data covering recent decades. Our analysis is embedded in the standard social welfare framework, which allows for an integrated and transparent evaluation of FR, making explicit the value judgements necessarily inherent in such analyses. Our results support recent findings that FR has increased over the last four decades, although we do not find support for some recent results that FR decreased since 1995. While we find strong support for a PoR for social insurance transfers (dominated by pension transfers), we find little support in the context of social assistance transfers. We argue that, in the context of social assistance, more detailed country-specific studies of the underlying political and economic dynamics are needed to adequately determine the existence or otherwise of a PoR. Our high-level analysis can, however, help to identify possible candidates for such country case studies.

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  • David Coady, 2023. "In Search of a Paradox of Redistribution Analysis of Fiscal Redistribution in High-Income Countries," LIS Working papers 871, LIS Cross-National Data Center in Luxembourg.
    • Handle: RePEc:lis:liswps:871
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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