An Economic Analysis of Public Transfers

Toshihiro Ihori
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Toshihiro Ihori: Faculty of Economics, University of Tokyo.

No CIRJE-F-18, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper develops simple models of public transfers. The sources of income inequality are differences in ability and in luck. The government employs a redistribution policy due to altruistic motives in the case of ability differences. We consider the case there the government reoptimizes income inequality is differences in luck, the economy creates a mutual insurance or provides public goods due to risk sharing motives. We derive a paradoxical result that a more able individual would not enjoy higher welfare than a less able individual. We also investigate how public transfers react to increases in income level and income inequality.

Pages: 28 pages
Date: 1998-09
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:98cf18

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