Rejecting Non-Paternalist Motivation: An Experimental Test

Is people’s willingness to implement their fairness views on a group dependent on how many in the group share their view? We designed a new experiment to answer this question. Spectator participants were asked how many other participants they believe share their view of whether it is fair to redistribute income in a work task. They were then given the option to pay two cents to implement the distribution they found fair upon a pair of participants who had completed the work task. Although spectator participants systematically overestimate how many share their fairness view, being informed about the true number does not affect their decision to implement the distribution they found fair. The results suggest that people are motivated to implement their fairness view regardless of whether their view is at odds with that of those who are affected.

The Justificatory Argument for Redistribution and Welfare State

There is a dispute between welfare liberals and libertarians about whether redistribution of wealth is a rights violation. Welfare liberals believe that a state should redistribute income and wealth. In contrast, libertarians think redistribution is an intervention and a rights violation to the people who earn money in a free market by their inheritance or gifts. In the debate between Rawls and Nozick, there are two main disagreements about the liberty of whom and to what extent natural talents should be considered a shared asset by a state. MacIntyre thinks that Rawls and Nozick’s moral debate is meaningless since there is conceptual incommensurability of the rival arguments in it. His resolution offers a virtue ethics perspective to be a reconciliation, which fails to provide a universal moral principle in a multicultural world. However, a new way to understand the concept of labor seems to give a justificatory argument for redistribution and welfare state.

Protectionism

This chapter considers the flip side of the case on free trade, in which trade interventions are often misguided and costly. It analyzes tariffs and quotas on imports that inefficiently redistribute income from consumers to producers. It points out how trade barriers produce a net economic loss due to the costs of consumers exceeding the benefits to producers and reduce exports that harm downstream user industries. The chapter also addresses the question of why trade protectionism is often politically attractive. It examines situations in which protection may be justified in theory, even if governments might be ineffective in trying to take advantage of those situations.

Part I Cartels in Context, 3 Do Cartels Overcharge?

This chapter evaluates the research on the size of cartel overcharges and their other effects. The case against cartels is based on the empirical claims that cartels harm consumers because they increase prices and reduce output, productivity, and economic growth. They also redistribute income from consumers to those in the cartel. Research suggests that detected cartels overcharge their customers around average 20% to 25% of the purchase prices. However, there is a very wide variation with overcharges as high as 80% and greater. International cartels overcharge their customers more than national cartels. There is also some evidence that the overcharges in Europe are higher than those in the US. While the price overcharge is the most apparent effect of a cartel, it does not represent the economic losses it inflicts. Indeed, cartels also reduce productive, allocative, and dynamic economic efficiency.

The Law and Economics of Redistribution

Should legal rules be used to redistribute income? Or should income taxation be the exclusive means for reducing income inequality? This article reviews the legal scholarship on this question. First, it traces how the most widely cited argument in favor of using taxes exclusively— Kaplow & Shavell's (1994) double-distortion argument—evolved from previous debates about whether legal rules could even be redistributive and whether law and economics should be concerned exclusively with efficiency or with distribution as well. Next, it surveys the responses to the double-distortion argument. These responses appear to have had only limited success in challenging the sturdy reputation of the double-distortion argument. Finally, it highlights new directions in a debate revived by increasing economic inequality.

FISCAL INSTITUTIONS AND THE SIZE AND INTER-REGIONAL DISTRIBUTION OF PUBLIC REDISTRIBUTION

Fiscal institutions, which are responsible for the delegation of tax and spending powers among different tiers of governments, are important determinants of the size and efficiency of public redistribution. In this paper we develop a comparative analysis of the impact of fiscal decentralization vis-à-vis tax revenue sharing on the government’s effort to redistribute income. The main findings are: first, the size of the national budget for public redistribution is the same under fiscal decentralization and tax revenue sharing. Second, different fiscal institutions lead to different regional distributions of public transfers. Third, when choosing between decentralization and tax revenue sharing, there is a tradeoff between the efficiency and the regional effort of the government to redistribute income. Resumen Las instituciones fiscales, que determinan la responsabilidad del diseño de impuestos y gasto entre los diferentes niveles de gobierno, son importantes determinantes del tamaño y eficiencia de la redistribución pública. En este artículo, se desarrolla un análisis comparativo del impacto en el esfuerzo del gobierno en redistribuir el ingreso, entre la descentralización fiscal en y una política de compartir el ingreso fiscal. Los principales resultados son: primero, el tamaño del presupuesto en redistribución es el mismo para una economía con descentralización o en la que se comparte el ingreso fiscal. Segundo, las instituciones fiscales implican una asignación diferente en la distribución regional de transferencias públicas. Tercero, al escoger entre descentralización y el compartir el ingreso fiscal, existe un intercambio entre la eficiencia y la distribución regional de las transferencias públicas.

Should the Law Do Anything about Economic Inequality

Cornell Journal of Law and Public Policy: Vol. 26 : Iss. 1 , Article 1What should be done about rising income and wealth inequality? Should the design and adoption of legal rules take into account their effects on the distribution of income and wealth? Or should the tax-and transfer system be the exclusive means to address concerns about inequality? A widely-held view argues for the latter: only the tax system, and not the legal system, should be used to redistribute income. While this proposition comes in a variety of normative arguments and has support across the political spectrum, there is also a well-known law-and economics version. This argument, known as the “double-distortion” argument, is simply stated. Legal rules that redistribute income only add to the economic distortions that are already present in the tax system. It would therefore be better for everyone, and especially the poor, to instead adopt an efficient, nonredistributive legal rule, and increase redistribution through the tax system.This Article challenges the double-distortion argument from a law and-economics perspective. There are two main arguments, in addition to several other subsidiary points. First, in the abstract, there is no reason to believe that legal rules that have redistributive effects will always reduce efficiency; indeed, they can sometimes increase efficiency. Examples from the regulation of product markets, labor markets, and financial markets underscore this claim. In these cases, legal redistribution is more efficient than redistribution through the tax system. Second, legal rules are likely to be more attractive than taxation precisely in cases where inequality itself or normative concern about inequality is high. Under the optimal tax policy, higher inequality or greater concern about inequality will justify larger tax distortions. Therefore, a particular legal rule is more likely to be more efficient than the optimal tax policy under these circumstances. The ultimate conclusion is that a mix of legal rules and taxation, rather than taxation exclusively, will be the best way to address economic inequality.

Clientelism in Indian Villages

We study the operation of local governments (Panchayats) in rural Maharashtra, India, using a survey that we designed for this end. Elections are freely contested, fairly tallied, highly participatory, non-coerced, and lead to appointment of representative politicians. However, beneath this veneer of ideal democracy we find evidence of deeply ingrained clientelist vote-trading structures maintained through extra-political means. Elite minorities undermine policies that would redistribute income toward the majority poor. We explore the means by which elites use their dominance of land ownership and traditional social superiority to achieve political control in light of successful majoritarian institutional reforms. (JEL D72, H23, I38, J15, O15, O17, O18)

Income Inequality, Capitalism, and Ethno-Linguistic Fractionalization

We examine the relationship between capitalism and income inequality for a large sample of countries using an adjusted economic freedom index as proxy for capitalism. Our results suggest that there is no robust relationship between economic freedom and Gini coefficients based on gross income. Subsequently, we analyze the relationship between income redistribution and ethno-linguistic fractionalization. We find that the impact of ethno-linguistic fractionalization on income redistribution is conditional on the level of economic freedom: countries that have a high degree of fractionalization redistribute income less, while capitalist countries that have a low degree of fractionalization redistribute income more.