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

Torben M Andersen and Jonas Maibom

No 11189, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Efficiency; Equity; Trade-off (search for similar items in EconPapers)
JEL-codes: D61 D63 E02 H2 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-eff and nep-pub
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Citations: View citations in EconPapers (12)

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