Redistribution of income and wealth is the transfer of income and wealth (including physical property) from some individuals to others by means of a social mechanism such as taxation, charity, welfare, public services, land reform, monetary policies, confiscation, divorce or tort law. The term typically refers to redistribution on an economy-wide basis rather than between selected individuals.
Interpretations of the phrase vary, depending on personal perspectives, political ideologies and the selective use of statistics. It is frequently heard in politics, usually referring to perceived redistributions from those who have more to those who have less. Occasionally, however, it is used to describe laws or policies that cause opposite redistributions that shift monetary burdens from wealthy to low-income individuals.
The phrase is often coupled with the term "class warfare", with high income earners and the wealthy portrayed as victims of unfairness and discrimination.
Redistribution tax policy should not be confused with predistribution policies. "Predistribution" is the idea that the state should try to prevent inequalities occurring in the first place rather than through the tax and benefits system once they have occurred. For example, a government predistribution policy might require employers to pay all employees a living wage, not just a minimum wage, as a "bottom-up" response to widespread income inequalities or high poverty rates.
Many alternate taxation proposals have been floated without the political will to alter the status quo. One example is the proposed "Buffett Rule", which is a hybrid taxation model composed of opposing systems, intended to minimize the favoritism of the special interest tax design.
The effects of a redistribution system are actively debated on ethical and economic grounds. The subject includes analysis of its rationales, objectives, means, and policy effectiveness.
In ancient times, redistribution operated as a palace economy. These economies were centrally based around the administration, so the dictator or pharaoh had both the ability and the right to say who was taxed and who got special treatment.
Another early form of wealth redistribution occurred in Plymouth Colony under the leadership of William Bradford. Bradford records in his diary that this "common course" bred confusion, discontent, distrust, and the colonists looked upon it as a form of slavery.
A closely related term, distributism (also known as distributionism or distributivism), is an economic ideology that developed in Europe in the late 19th and early 20th century based upon the principles of Catholic social teaching, especially the teachings of Pope Leo XIII in his encyclical Rerum novarum and Pope Pius XI in Quadragesimo anno. More recently, Pope Francis in his Evangelii Gaudium, echoed the earlier Papal statements.
Role in economic systems
Different types of economic systems feature varying degrees of interventionism aimed at redistributing income, depending on how unequal their initial distributions of income are. Free-market capitalist economies tend to feature high degrees of income redistribution. However, Japan's government engages in much less redistribution because its initial wage distribution is much more equal than Western economies. Likewise, the socialist planned economies of the former Soviet Union and Eastern bloc featured very little income redistribution because private capital and land income – the major drivers of income inequality in capitalist systems – was virtually nonexistent; and because the wage rates were set by the government in these economies.
A comparison between Socialist and Capitalist Systems in terms of distribution of income is much easier as both these systems stand practically implemented in a number of countries under compatible political systems. In Islamic System,inequality in almost all the Eastern European economies has increased after moving from socialist controlled systems to market base economies,for the Islamic distribution, in the following are the three key elements of Islamic Economic System, markedly different from Capitalism and with significant implications for distribution of income and wealth (if fully implemented): The first one is the System of Ushr and Zakaat,Ushr is an obligatory payment from agriculture output at the time of harvesting. If agriculture land is irrigated by rain or some other natural freely available water the producer is obliged to pay ten percent of the output as Ushr. In case irrigation water is not free of cost then the deduction would be five percent, while Zakat is a major instrument of restricting excessive accumulation of wealth and helping the poor and most vulnerable members of the society, Secondly the interest is Prohibited, which is Elimination of interest from the economic system is a revolutionary step with profound effects on all spheres of economic activities, and finally, Inheritance Law Of Islam, it is the distribution of property of a deceased person from closest family members and moving towards farthest of family. Son(s), daughter(s), wife, husband and parents are the prime recipients. This distribution is explicitly illustrated in Qur’an and cannot be changed or modified. Under varying conditions the share of relatives accordingly changes. The important principle is that the owner at the time of his/her death cannot change these shares.
[Public Finance 1]
How views on redistribution are formed
The context that a person is in can influence their views on redistributive policies. For example, despite both being Western civilizations, typical Americans and Europeans do not have the same views on redistribution policies. This phenomenon persists even among people who would benefit most from redistributive policies, as poor Americans tend to favor redistributive policy less than equally poor Europeans. Research shows this is because when a society has a fundamental belief that those who work hard will earn rewards from their work, the society will favor lower redistributive policies. However, when a society as a whole believes that some combination of outside factors, such as luck or corruption, can contribute to determining one's wealth, those in the society will tend to favor higher redistributive policies. This leads to fundamentally different ideas of what is ‘just’ or fair in these countries and influences their overall views on redistribution.
Another context that can influence one's ideas of redistributive policies is the social class that one is born into. People tend to favor redistributive policy that will help the groups that they are a member of. This is displayed in a study of Latin American lawmakers, where it is shown that lawmakers born into a lower social class tend to favor more redistributive policies than their counterparts born into a higher social class. Research has also found that women generally support redistribution more than men do, though the strength of this preference varies across countries. While literature remains mixed on if monetary gain is the true motivation behind favoring redistributive policies, most researchers accept that social class plays some role in determining someone's views towards redistributive policies. Nonetheless, the classic theory that individual preferences for redistribution decrease with their income, leading to societal preferences for redistribution that increase with income inequality has been disputed.
Modern forms of redistribution
The redistribution of wealth and its practical application are bound to change with the continuous evolution of social norms, politics, and culture. Within developed countries income inequality has become a widely popular issue that has dominated the debate stage for the past few years. The importance of a nation's ability to redistribute wealth in order to implement social welfare programs, maintain public goods, and drive economic development has brought various conversations to the political arena. A country's means of redistributing wealth comes from the implementation of a carefully thought out well described system of taxation. The implementation of such a system would aid in achieving the desired social and economic objective of diminishing social inequality and maximizing social welfare. There are various ways to impose a tax system that will help create a more efficient allocation of resources, in particular, many democratic, even socialist governments utilize a progressive system of taxation to achieve a certain level of income redistribution. In addition to the creation and implementation of these tax systems, "globalization of the world economy [has] provided incentives for reforming the tax systems" across the globe. Along with utilizing a system of taxation to achieve the redistribution of wealth, the same socio-economic benefit could be achieved if there are appropriate policies enacted within current political infrastructure that addresses these issues. Modern thinking towards the topic of the redistribution of wealth, focuses on the concept that economic development increases the standard of living across an entire society.
Today, income redistribution occurs in some form in most democratic countries through economic policies. Some redistributive policies attempt to take wealth, income, and other resources from the "haves" and give them to the "have-nots", but many redistributions go elsewhere.
For example, the U.S. government's progressive-rate income tax policy is redistributive because much tax revenue goes to social programs such as welfare and Medicare.
In a progressive income tax system, a high income earner will pay a higher tax rate (a larger percentage of their income) than a low income earner; and therefore, will pay more total dollars per person.
Other taxation-based methods of redistributing income are the negative income tax for very low income earners and tax loopholes (tax avoidance) for the better-off.
Two other common types of governmental redistribution of income are subsidies and vouchers (such as food stamps). These transfer payment programs are funded through general taxation, but benefit the poor or influential special interest groups and corporations. While the persons receiving transfers from such programs may prefer to be directly given cash, these programs may be more palatable to society than cash assistance, as they give society some measure of control over how the funds are spent.
Despite having a regressive tax rate, the U.S. Social Security systems results in a net redistribution of wealth to the poor due to its highly progressive benefit formula.
Governmental redistribution of income may include a direct benefit program involving either cash transfers or the purchase of specific services for an individual. Medicare is one example. Medicare is a government-run health insurance program that covers people age 65 or older, certain younger people with disabilities, and people with end-stage renal disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD). This is a direct benefit program because the government is directly providing health insurance for those who qualify.
The difference between the Gini index for the income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation.
Wealth redistribution can be implemented through land reform that transfers ownership of land from one category of people to another, or through inheritance taxes or direct wealth taxes. Before-and-after Gini coefficients for the distribution of wealth can be compared.
suggests that "the middle class faces a paradoxical status" in that they tend to vote against income redistribution, even though they would benefit economically from it.
The objectives of income redistribution are to increase economic stability and opportunity for the less wealthy members of society and thus usually include the funding of public services.
One basis for redistribution is the concept of distributive justice, whose premise is that money and resources ought to be distributed in such a way as to lead to a socially just, and possibly more financially egalitarian, society. Another argument is that a larger middle class benefits an economy by enabling more people to be consumers, while providing equal opportunities for individuals to reach a better standard of living. Seen for example in the work of John Rawls, another argument is that a truly fair society would be organized in a manner benefiting the least advantaged, and any inequality would be permissible only to the extent that it benefits the least advantaged.
Some proponents of redistribution argue that capitalism results in an externality that creates unequal wealth distribution.
Many economists have argued that wealth and income inequality are a cause of economic crises, and that reducing these inequalities is one way to prevent or ameliorate economic crises, with redistribution thus benefiting the economy overall. This view was associated with the underconsumptionism school in the 19th century, now considered an aspect of some schools of Keynesian economics; it has also been advanced, for different reasons, by Marxian economics. It was particularly advanced in the US in the 1920s by Waddill Catchings and William Trufant Foster. More recently, the so-called "Rajan hypothesis" posited that income inequality was at the basis of the explosion of the 2008 financial crisis. The reason is that rising inequality caused people on low and middle incomes, particularly in the US, to increase their debt to keep up their consumption levels with that of richer people. Borrowing was particularly high in the housing market and deregulation in the financial sector made it possible to extend lending in sub-prime mortgages. The downturn in the housing market in 2007 halted this process and triggered the financial crisis. Nobel Prize laureate Joseph Stiglitz, along with many others, supports this view.
There is currently a debate concerning the extent to which the world's extremely rich have become richer over recent decades. Thomas Piketty's Capital in the Twenty-First Century is at the forefront of the debate, mainly focusing on within-country concentration of income and wealth. Branko Milanovic provided evidence of increasing inequality at the global level, showing how the group of so-called "global plutocrats", i.e. the richest 1% in the world income distribution, were the main beneficiaries of economic growth in the period 1988–2008. More recent analysis supports this claim, as 27% of total economic growth worldwide accrued to the top 1% of the world income distribution in the period 1980–2016. The approach underpinning these analyses has been somehow critiqued in certain publications such as The Economist.
This section needs expansion
. You can help by adding to it. (November 2015)
Peter Singer's argument contrasts to Thomas Pogge's in that he states we have an individual moral obligation to help the poor.
Economic effects of inequality
Number of high-net-worth individuals in the world in 2011
Using statistics from 23 developed countries and the 50 states of the US, British researchers Richard G. Wilkinson and Kate Pickett show a correlation between income inequality and higher rates of health and social problems (obesity, mental illness, homicides, teenage births, incarceration, child conflict, drug use), and lower rates of social goods (life expectancy, educational performance, trust among strangers, women's status, social mobility, even numbers of patents issued per capita), on the other. The authors argue inequality leads to the social ills through the psychosocial stress, status anxiety it creates.
A 2011 report by the International Monetary Fund by Andrew G. Berg and Jonathan D. Ostry found a strong association between lower levels of inequality and sustained periods of economic growth. Developing countries (such as Brazil, Cameroon, Jordan) with high inequality have "succeeded in initiating growth at high rates for a few years" but "longer growth spells are robustly associated with more equality in the income distribution."
Public choice theory states that redistribution tends to benefit those with political clout to set spending priorities more than those in need, who lack real influence on government.
The socialist economists John Roemer and Pranab Bardhan criticize redistribution via taxation in the context of Nordic-style social democracy, reportedly highlighting its limited success at promoting relative egalitarianism and its lack of sustainability. They point out that social democracy requires a strong labor movement to sustain its heavy redistribution, and that it is unrealistic to expect such redistribution to be feasible in countries with weaker labor movements. They point out that, even in the Scandinavian countries, social democracy has been in decline since the labor movement weakened. Instead, Roemer and Bardhan argue that changing the patterns of enterprise ownership and market socialism, obviating the need for redistribution, would be more sustainable and effective at promoting egalitarianism.
Marxian economists argue that social democratic reforms – including policies to redistribute income – such as unemployment benefits and high taxes on profits and the wealthy create more contradictions in capitalism by further limiting the efficiency of the capitalist system via reducing incentives for capitalists to invest in further production. In the Marxist view, redistribution cannot resolve the fundamental issues of capitalism – only a transition to a socialist economy can.
Income redistribution will lower poverty by reducing inequality, if done properly. But it may not accelerate growth in any major way, except perhaps by reducing social tensions arising from inequality and allowing poor people to devote more resources to human and physical asset accumulation. Directly investing in opportunities for poor people is essential.
- ^ "Redistribution". Stanford Encyclopedia of Philosophy. Stanford University. 2 July 2004. Retrieved 13 August 2010.
The social mechanism, such as a change in tax laws, monetary policies, or tort law, that engenders the redistribution of goods among these subjects
- ^ Kessler, Glenn. "Fact Checker: Elizabeth Warren's claim that the bottom 90 percent got 'zero percent' of wage growth after Reagan". Washington Post. Retrieved 7 May 2017.
- ^ Reich, Robert (4 May 2017). "Trump's Stock in Trade is Cruelty. Count the ways". Newsweek. Retrieved 7 May 2017.
- ^ FAIR (July 2009). "For Media, 'Class War' Has Wealthy Victims, Rich getting richer seldom labeled as belligerents". Retrieved 8 May 2017.
- ^ F.A. Cowell ( 2008). "redistribution of income and wealth," The New Palgrave Dictionary of Economics, 2nd Edition, TOC.
- ^ Rugaber, Christopher S.; Boak, Josh (27 January 2014). "Wealth gap: A guide to what it is, why it matters". AP News. Retrieved 27 January 2014.
- ^ de Blois, Lukas; R.J. van der Spek (1997). An Introduction to the Ancient World. Translated by Susan Mellor. Routledge. pp. 56–60. ISBN 978-0-415-12773-8.
- ^ a b "William Bradford – Facts & Summary". History.com. Retrieved 3 January 2017.
- ^ History of Plymouth Plantation, p. 135
- ^ Hunt III, Arthur W. "Pope Francis Needs Distributism: Americans and popes alike can embrace a humane alternative to modern capitalism". The American Conservative. Retrieved 8 May 2017.
- ^ Rosser, Mariana V. and J Barkley Jr. (23 July 2003). Comparative Economics in a Transforming World Economy. MIT Press. p. 11. ISBN 978-0262182348.
Economies vary based on the extent to which and the methods by which governments intervene to redistribute income. This depends partly on how unequal income is to begin with before any redistributive policies are implemented. Thus the Japanese government does much less redistributing than the governments of many other capitalist countries because Japan has a more equal distribution of wages than most other capitalist countries. Command socialist economies also have had less income redistribution because governments initially control the distribution of income by setting wages and forbidding capital or land income.
- ^ a b Benabou, Roland; Tirole, Jean (May 2006). "Belief in A Just World and Redistributive Politics" (PDF). The Quarterly Journal of Economics. 121 (2): 699–746. doi:10.1162/qjec.2006.121.2.699.
- ^ a b c Carnes, Nicholas; Lupu, Noam (January 2015). "Rethinking the Comparative Perspective on Class and Representation: Evidence from Latin America". American Journal of Political Science. 59: 1–18. doi:10.1111/ajps.12112.
- ^ Corneo, Giacomo; Gruner, Hans Peter (2002). "Individual preferences for political redistribution". Journal of Public Economics. 83: 83–107. doi:10.1016/S0047-2727(00)00172-9. S2CID 73714466.
- ^ a b Alesina, Alberto; Di Tella, Rafael; MacCulloch, Robert (August 2004). "Inequality and happiness: are Europeans and Americans different?". Journal of Public Economics. 88 (9–10): 2009–2042. doi:10.1016/j.jpubeco.2003.07.006.
- ^ Shayo, Moses (May 2009). "A Model of Social Identity with an Application to Political Economy: Nation, Class and Redistribution". American Political Science Review. 103 (2): 147–174. doi:10.1017/S0003055409090194. S2CID 54773857.
- ^ a b Alesina, Alberto; Angeletos, George-Marios (September 2005). "Fairness and Redistribution". American Economic Review. 95 (4): 960–980. doi:10.1257/0002828054825655.
- ^ Klor, Esteban; Shayo, Moses (April 2010). "Social identity and preferences over redistribution". Journal of Public Economics. 94 (3–4): 269–278. doi:10.1016/j.jpubeco.2009.12.003. S2CID 54954164.
- ^ Buser, Thomas; Grimalda, Gianluca; Putterman, Louis; van der Weele, Joël (1 October 2020). "Overconfidence and gender gaps in redistributive preferences: Cross-Country experimental evidence". Journal of Economic Behavior & Organization. 178: 267–286. doi:10.1016/j.jebo.2020.07.005. ISSN 0167-2681.
- ^ Piketty, Thomas (August 1995). "Social Mobility and Redistributive Policies". The Quarterly Journal of Economics. CX (3): 551–584. doi:10.2307/2946692. hdl:1721.1/64248. JSTOR 2946692.
- ^ Meltzer, Allan H.; Richard, Scott F. (1981). "A Rational Theory of the Size of Government". Journal of Political Economy. 89 (5): 914–927. doi:10.1086/261013. S2CID 13083878.
- ^ Pecoraro, Brandon (1 April 2017). "Why don't voters 'put the Gini back in the bottle'? Inequality and economic preferences for redistribution". European Economic Review. 93: 152–172. doi:10.1016/j.euroecorev.2017.02.004. ISSN 0014-2921.
- ^ Steinmo, Sven (1993). Taxation and Democracy. New Haven and London: Yale University Press. pp. 157. ISBN 0-300-05409-2.
- ^ Barbour, Christine, and Gerald C. Wright. Keeping the Republic: Power and Citizenship in American Politics. 7th ed.: CQ, 2016.
- ^ Prante, Gerald, and Scott A. Hodge. "The Distribution of Tax and Spending Policies in the United States." Tax Foundation. N.p., 13 November 2013. Web.
- ^ Lee, Dwight R. "Redistribution". Library of Economics and Liberty.
- ^ Harvey S. Rosen & Ted Gayer, Public Finance pp. 271–72 (2010).
- ^ "Is Social Security Progressive?". The US Congressional Budget Office (CBO). 15 December 2006. Retrieved 8 February 2014.
- ^ Rector, Robert. "The Redistributive State: The Allocation of Government Benefits, Services, and Taxes in the United States." The Heritage Foundation. N.p., 15 September 2015. Web.
- ^ Baizidi, Rahim (17 July 2019). "Paradoxical class: paradox of interest and political conservatism in middle class". Asian Journal of Political Science. 27 (3): 272–285. doi:10.1080/02185377.2019.1642772. ISSN 0218-5377. S2CID 199308683.
Accordingly, three main classes, including the upper class, the middle class, and the lower class have been divided and their attitudes towards redistribution of wealth (as a non-conservative policy) have been evaluated. Given the current economic inequality, in the case of adopting the policy of redistribution of the wealth, the lower and middle classes will benefit economically, since they possess less wealth than their population percentage. Nevertheless, the results of the survey revealed that only the lower class assented to redistribution of the wealth, while upper and middle classes largely dissented to it.
- ^ Marx, K. A. ,Contribution to the Critique of Political Economy. Progress Publishers, Moscow, 1977
- ^ The Economist (20 January 2011). "The rich and the rest". Retrieved 7 April 2020.
- ^ (Dorfman 1959) harv error: no target: CITEREFDorfman1959 (help)
- ^ Allgoewer, Elisabeth (May 2002). "Underconsumption theories and Keynesian economics. Interpretations of the Great Depression" (PDF). Discussion paper no. 2002-14. University of St. Gallen.
- ^ a b Van Treeck, Till; Sturn, Simon (2012). Income inequality as a cause of the Great Recession?: A survey of current debates (PDF). ILO, Conditions of Work and Employment Branch. p. 17.
- ^ Rajan, R. (2010). Fault Lines: How Hidden Fractures Still Threaten the World Economy. Princeton University Press.
- ^ Stiglitz, J. E. (2009). "The global crisis, social protection and jobs" (PDF). International Labour Review. 148, 1–2 (1–2): 1–13. doi:10.1111/j.1564-913X.2009.00046.x.
- ^ Milanovic, Branko (2016). Global inequality: A new approach for the age of globalization. Harvard University Press.
- ^ Alvaredo, F.; Chancel, F.; Piketty, T.; Saez, E.; Zucman, G. (2018). "World inequality report" (PDF).
- ^ "Forget the 1%; Free Exchange", The Economist, 8 November 2014, p. 79.
- ^ Stafforini, Pablo. "Famine, Affluence, and Morality, by Peter Singer". Retrieved 3 January 2017.
- ^ "Fighting Poverty". Retrieved 3 January 2017.
- ^ http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf
- ^ "The Spirit Level - The Equality Trust". Retrieved 3 January 2017.
- ^ "The Spirit Level: how 'ideas wreckers' turned book into political punchbag", Robert Booth, The Guardian, 13 August 2010
- ^ "Inequality and Unsustainable Growth: Two Sides of the Same Coin?" Andrew G. Berg and Jonathan D. Ostry, IMF Staff Discussion Note, 8 April 2011
- ^ Berg, Andrew G.; Ostry, Jonathan D. (2011). "Equality and Efficiency". Finance and Development. International Monetary Fund. 48 (3). Retrieved 10 September 2012.
- ^ Plotnick, Robert (1986) "An Interest Group Model of Direct Income Redistribution", The Review of Economics and Statistics, vol. 68, no. 4, pp. 594–602.
- ^ "Market socialism, a case for rejuvenation", by Pranab Bardhan and Johen E. Roemer. 1992. Journal of Economic Perspectives, vol. 6, no. 3, p. 104: "Since it (social democracy) permits a powerful capitalist class to exist (90 percent of productive assets are privately owned in Sweden), only a strong and unified labor movement can win the redistribution through taxes that is characteristic of social democracy. It is idealistic to believe that tax concessions of this magnitude can be effected simply through electoral democracy without an organized labor movement, when capitalists organize and finance influential political parties. Even in the Scandinavian countries, strong apex labor organizations have been difficult to sustain and social democracy is somewhat on the decline now."
- ^ Market Socialism: The Debate Among Socialists, by Schweickart, David; Lawler, James; Ticktin, Hillel; Ollman, Bertell. 1998. pp. 60–61: "The Marxist answers that...it involves limiting the incentive system of the market through providing minimum wages, high levels of unemployment insurance, reducing the size of the reserve army of labour, taxing profits, and taxing the wealthy. As a result, capitalists will have little incentive to invest and the workers will have little incentive to work. Capitalism works because, as Marx remarked, it is a system of economic force (coercion)."
- ^ Bourguignon, François. "Redistribution of Income and Reducing Economic Inequality - IMF F&D Magazine". www.imf.org. Retrieved 13 April 2021.