How can you fairly redistribute wealth and income?

1 What is redistribution?

Redistribution is the process of transferring income or wealth from some groups or individuals to others, usually through taxes, subsidies, transfers, or public spending. Redistribution can have different goals, such as reducing poverty, inequality, or social exclusion, promoting economic growth, stability, or efficiency, or achieving social justice, fairness, or solidarity. Redistribution can also have different effects, depending on how it is designed and implemented, such as creating incentives or disincentives for work, saving, or investment, affecting the allocation of resources and the production of goods and services, or influencing the political and social dynamics and power relations in society.

2 Why redistribute?

Redistribution can be motivated by different reasons, depending on the normative and empirical perspectives of the people involved. From an ethical standpoint, redistribution can be seen as a way of respecting the dignity and rights of all human beings, regardless of their circumstances, abilities, or contributions. It can also be based on principles of equality, reciprocity, or responsibility. Economically, redistribution could correct market failures or inefficiencies that result from unequal distribution of income or wealth. It could also increase aggregate demand, reduce volatility and instability, or foster innovation and productivity. Politically, redistribution could ensure the legitimacy and stability of the democratic system by preventing concentration of power or addressing grievances and demands of the majority. It could also foster social cohesion and trust by reducing conflicts and tensions or enhancing participation and representation.

3 How to measure redistribution?

Before deciding how to redistribute wealth and income, it is important to have a clear and consistent way of measuring them. Income is the flow of money or goods that a person or a household receives from work, investments, or transfers. This can be measured before or after taxes and transfers, and adjusted for inflation, household size, or purchasing power parity. Wealth is the stock of assets or liabilities that a person or a household owns or owes, which can include financial assets like bank accounts, stocks, or bonds, as well as non-financial assets such as real estate, land, or vehicles. Inequality is the degree of variation or dispersion of income or wealth among the population and can be measured by different indicators such as the Gini coefficient, the Lorenz curve, or the income or wealth shares of different percentiles or groups. This can also be decomposed by age, gender, race, and education.

4 What are the tools of redistribution?

Different tools or instruments can be used to redistribute wealth and income, depending on the source and destination of the transfers, as well as the magnitude and frequency of the transfers. Taxes are compulsory payments that the government collects from individuals or entities, based on their income, wealth, consumption, or transactions. Subsidies are payments that the government makes to individuals or entities, which can be targeted or universal, cash or in-kind. Transfers are payments that are linked to needs, circumstances, or entitlements; these can be social or private, contributory or non-contributory. Public spending is another form of redistribution; this expenditure can be redistributive or non-redistributive, efficient or inefficient. All of these tools of redistribution are important for achieving a fair and equitable society.

5 How to evaluate redistribution?

After implementing a redistribution policy or program, it is important to evaluate its effectiveness and impact, as well as its costs and benefits. To do this, there are different criteria and methods that can be used, such as equity, efficiency, and sustainability. Equity measures the extent to which redistribution reduces or increases disparities in income or wealth. Efficiency looks at how well resources are allocated and utilized in the economy. Sustainability assesses whether redistribution is compatible with fiscal, environmental, or social constraints. All three criteria can be measured by comparing indicators before and after redistribution, or by using simulations, cost-benefit analysis, econometric models, fiscal rules, environmental standards, surveys, and experiments.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?