Suchergebnisse

In determining the optimal redistribution of a given population's income, we ask which factor is more important: the social planner's aversion to inequality, embedded in an isoelastic social welfare function indexed by a parameter alpha, or the individuals' concern at having a low relative income, indexed by a parameter beta in a utility function that is a convex combination of (absolute) income and low relative income. Assuming that the redistribution comes at a cost (because only a fraction of a taxed income can be transferred), we find that there exists a critical level of beta below which different isoelastic social planners choose different optimal allocations of incomes. However, if beta is above that critical level, all isoelastic social planners choose the same allocation of incomes because they then find that an equal distribution of incomes maximizes social welfare regardless of the magnitude of alpha.

Since the phrase income distribution covers a large number of different concepts, it is necessary to define these and to indicate the choice made in this article. Income for a given recipient may cover lists of items which are not always the same. Apart from popular misunderstandings about which items to include and exclude, statistical sources on incomes use varying definitions, often because of the data available. Tax statistics, which are among the most important sources for income data, sometimes exclude items because tax legislation contains allowances or includes items because of traditional concepts of income. The data from this source have been processed by a number of authors seeking to approximate the economic income concept, and it is assumed that this aim more or less has been attained. In other words, the article assumes that, in principle, the income figures used in the more sophisticated studies available cover the economic income concept and, more precisely, primary income, which is considered identical to income before tax.