The Efficiency Case for Universality

Nicholas Rowe and Frances Woolley

Canadian Journal of Economics, 1999, vol. 32, issue 3, 613-629

Abstract: The authors compare universal social programs with targeted social benefits. They define 'universality' as separability of the tax/transfer system in income and other nonmonetary attributes, and introduce the concept of 'parallel equity'--a requirement that like differences in needs should be treated alike. The authors develop a model based on optimal tax theory that shows that under specified assumptions universality is efficient as well as equitable; departures from universality result in an inefficient structure of net marginal tax rates. Their key assumptions are that individual-specific needs necessitate a fixed exogenous monetary expenditure and that needs are exogenous, observable, and uncorrelated with other relevant variables. The authors then relax these assumptions and describe the limited circumstances under which departures from universality may be desirable.

Date: 1999
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