Redistributing Income and Relative Efficiency

Sam Allgood

Economic Inquiry, 2003, vol. 41, issue 3, 480-495

Abstract: This article considers the relative efficiency of marginally redistributing income from high- to low-income households. Additional spending on a negative income tax is compared with spending on an earnings or a wage subsidy. One set of reforms imposes the same burden on the nonpoor, and another set redistributes the same net benefit to the working poor. Additional spending on a negative income tax is more efficient than spending a similar amount on an earnings subsidy (the Earned Income Tax Credit), for some reforms and parameters. The wage subsidy is the most efficient, independent of parameters or type of reform. (JEL H2, H3, I3) Copyright 2003, Oxford University Press.

JEL-codes: H2 H3 I3 (search for similar items in EconPapers)
Date: 2003
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