The Redistribution of Income and Wealth

Abstract

Most government policies aimed at redistribution of income and wealth can be classified either as transfers or regulation. Transfers can be divided into transfers from individuals — taxes — and transfers to individuals — subsidies. The income tax is an example of a transfer from taxpayers to the government, unemployment benefit is an example of a transfer from the government to individuals — in this case the unemployed. Regulatory activity includes legislative attempts to regulate the price individuals receive for the sale of their services; minimum wage legislation is an example. In this chapter we ask how effective these policies are in achieving redistribution, and what impact they have on efficiency of the economic system. We begin with an analysis of the current tax and the social security system. This is followed by an examination of proposals for integration of the two through a negative income tax scheme. We conclude with a discussion of minimum wages and the taxation of wealth.