Working Paper: NBER ID: w8820
Authors: Rebecca M. Blank
Abstract: Economists tend to assume that redistributive transfers increase equity but cause a loss in efficiency, the so-called 'leaky bucket' effect. This paper explores situations where efficiency losses are small or where equity and efficiency might even complement each other. A simple model identifies key parameters that cause leaky buckets and which policy can affect. Three situations are discussed where the equity/efficiency tradeoff may be low: When transfers go to populations with no capacity to change their behavior; when transfers go to programs that limit efficiency losses through behavioral requirements; and when commodities are subsidized that function as long-term investments and create future income gains.
Keywords: No keywords provided
JEL Codes: D3; I3; H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government transfers aimed at increasing equity (H53) | inefficiencies (D61) |
| transfers to populations with no capacity to change their behavior (J11) | minimize equity-efficiency tradeoff (D61) |
| transfers linked to programs that limit efficiency losses (F16) | minimize equity-efficiency tradeoff (D61) |
| subsidized commodities as long-term investments (Q02) | minimize equity-efficiency tradeoff (D61) |