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

Torben M Andersen and Jonas Maibom

Oxford Economic Papers, 2020, vol. 72, issue 2, 391-411

Abstract: Widely quoted cross-country evidence finds income to be negatively associated with inequality, suggesting the absence of a trade-off between efficiency and equity. Such evidence implicitly assumes that all countries are at the frontier in an efficiency–equity space. We refute this for most OECD countries, and find a best-practice frontier displaying a trade-off. In accordance with standard economic theory, a larger tax burden is associated with lower efficiency and more equity. Interestingly, the trade-off has not become steeper over the sample period 1970–2014. Country positions differ significantly with some being consistently at the frontier, while others are well inside the opportunity set.

JEL-codes: D61 D63 E02 H2 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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