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Redistribution of income and wealth is the transfer ofincome andwealth (including physicalproperty) from someindividuals to others through a social mechanism such astaxation,welfare,public services,land reform,monetary policies,confiscation,divorce ortort law.[1] The term typically refers to redistribution on an economy-wide basis rather than between selected individuals.
Understanding of the phrase varies, depending on personal perspectives, political ideologies and the selective use of statistics.[2] It is frequently used in politics, to refer to perceived redistribution from those who have more to those who have less. Rarely, the term is used to describe laws or policies that cause redistribution in the opposite direction, from the poor to the rich.[3]
The phrase is sometimes related to the termclass warfare, where the redistribution is alleged to counteract harm caused by high-income earners and the wealthy through means such as unfairness and discrimination.[4]
Redistribution tax policy should not be confused withpredistribution policies. "Predistribution" is the idea that the state should try to prevent inequalities from occurring in the first place rather than through the tax and benefits system once they have occurred. For example, a government predistribution policy might require employers to pay all employees aliving wage and not just aminimum wage, as a "bottom-up" response to widespreadincome inequalities or high poverty rates.
Many "top-down" taxation proposals have been floated. In theUnited States, the "Buffett Rule" is a hybrid taxation model composed of opposing systems intended to minimize the favoritism of special interests in tax design.
The effects of a redistributive system are actively debated on ethical and economic grounds. The subject includes an analysis of its rationales, objectives, means, and policy effectiveness.[5][6]
Inantiquity, redistribution operated within apalace economy,[7] whereby thegovernment, meaning the dictator or pharaoh, had both the ability and the right to say who was taxed and who received special treatment. Inthe West,ancient civilisations hadcustoms to aid wealth redistribution, such as theancient Jews, whoseJubilee relieved the debts of the poor, and theancient Greeks, whoseliturgies saw the rich voluntarily financed thecity-states.
In theearly modern period, there have been experiments inagrarian socialism. For example, in thePlymouth Colony under the leadership ofWilliam Bradford,[8] who recorded in his diary that this "common course" bred confusion, discontent, and distrust among colonists, who looked upon the system as a form ofslavery.[9]
A closely related term,distributism (also known as distributionism or distributivism), refers to an economic ideology that developed in Europe in the late 19th and early 20th century. It was based on the principles ofCatholic social teaching, particularly the teachings ofPope Leo XIII in his encyclicalRerum Novarum andPope Pius XI inQuadragesimo Anno. More recently,Pope Francis echoed the earlier Papal statements in hisEvangelii Gaudium.[10]
In 1789,Montesquieu posited inThe Spirit of Law thatprogressive tax is most suited toliberty, whereas aregressive tax is most suited toslavery.[11] Incontemporary society, this principle is still prevalent, whereprogressive taxation is recognized as a means to redistribute income and wealth from the rich to the poor.[12]
Different types ofeconomic systems feature varying degrees of interventionism aimed at redistributing income, depending on how unequal their initial distributions are. Free-marketcapitalist economies tend to feature high degrees of income redistribution. However, Japan's government engages in much less redistribution because its initial wage distribution is much more equal thanWestern economies. Likewise, thesocialist planned economies of the formerSoviet Union andEastern bloc featured very little income redistribution because privatecapital and land income were restricted. To attain an efficient allocation of resources with the desired distribution of income, if the assumptions of the competitive model are satisfied by the economy, the sole role of the government is to alter the initial distribution of wealth[13] – the major drivers of income inequality in capitalist systems – was virtually nonexistent; and because the wage rates were set by the government in these economies.[14]
A comparison betweensocialist andcapitalist systems in terms of distribution of income is much easier as both these systems stand practically implemented in a number of countries under compatible political systems.Economic inequality in almost all the Eastern European economies has increased after moving from socialistplanned economies to capitalistmarket economies. These economies maintain features ofsocialism, and are argued to resemble closersocial democracy thanfree-market capitalism.
For the Islamic distribution, the following are the three key elements of the Islamic Economic System, which have significant implications for the distribution of income and wealth (if fully implemented) and are markedly different fromcapitalism. The Islamic system is defined by the following three key elements: Ushr and Zakat, the prohibition of usury, and the Inheritance Law. Ushr is an obligatory payment from agriculture output at the time of harvesting. If agricultural land is irrigated by rain or some other natural freely available water the producer is obliged to pay ten percent of the output as Ushr.
In case irrigation water is not free of cost then the deduction would be five percent, while Zakat is a major instrument of restricting the excessive accumulation of wealth and helping the poor and most vulnerable members of the society, Secondly,usury, or charginginterest, is prohibited. Elimination of interest from the economic system is a revolutionary step with profound effects on all spheres of economic activities. Finally, the Inheritance Law Of Islam is the distribution of the property of a deceased person from closest family members and moving towards a more distant family. Son(s), daughter(s), wife, husband and parents are the prime recipients. This distribution is explicitly illustrated inQuran and cannot be changed or modified. Under varying conditions, the share received by different relatives accordingly changes. The important principle is that the owner at the time of his/her death cannot change these shares.[15]
The context that a person is in can influence their views on redistributive policies.[16][17][18] For example, despite both being Western civilizations, typical Americans and Europeans do not have the same views on redistribution policies.[19] This phenomenon persists even among people who would benefit most from redistributive policies, as poor Americans tend to favor redistributive policy less than equally poor Europeans.[20][19] Research shows this is because when a society has a fundamental belief that those who work hard will earn rewards from their work, the society will favor lower redistributive policies.[21] However, when a society as a whole believes that some combination of outside factors, such as luck or corruption, can contribute to determining one's wealth, those in the society will tend to favor higher redistributive policies.[21] This leads to fundamentally different ideas of what is ‘just’ or fair in these countries and influences their overall views on redistribution.[16]
Another context that can influence one's ideas of redistributive policies is the social class that one is born into.[17] People tend to favor redistributive policy that will help the groups that they are a member of.[22] This is displayed in a study of Latin American lawmakers, where it is shown that lawmakers born into a lower social class tend to favor more redistributive policies than their counterparts born into a higher social class.[17] Research has also found that women generally support redistribution more than men do, though the strength of this preference varies across countries.[23] While literature remains mixed on if monetary gain is the true motivation behind favoring redistributive policies, most researchers accept that social class plays some role in determining someone's views towards redistributive policies.[24] Nonetheless, the classic theory that individual preferences for redistribution decrease with their income, leading to societal preferences for redistribution that increase withincome inequality[25] has been disputed.[26][27] Perhaps the most important impact of government on the distribution of “wealth” is in the sphere of education—in ensuring that everyone has a certain amount ofhuman capital. By providing all individuals, regardless of the wealth of their parents, with a free basic education, government reduces the degree of inequality that otherwise would exist.
Income inequality has many different connotations, three of which are of particular importance:
The existence of high inequality within manydeveloping countries, alongside persistentpoverty, began to draw attention in the early 1970s. However, throughout the 1980s and into the 1990s, the dominant view among development economists was that inequality in poor countries was a less pressing issue compared to ensuring sufficient growth, which was believed to be the primary means of reducing poverty. The policy recommendation for developing countries was clear: it was not possible to simultaneously decrease poverty and inequality. This perspective was based on the belief that economic growth would eventually lead to a trickle-down effect, where the benefits of growth would eventually reach the poorest members of society. However, evidence began to emerge in the 1990s that challenged this notion and suggested that the link between economic growth and poverty reduction was not as strong as previously thought. This shift in thinking led to a reconsideration of the importance of addressing inequality in the pursuit of development.[29]
The redistribution of wealth and its practical application are bound to change with the continuous evolution of social norms, politics, and culture. Within developed countries income inequality has become a widely popular issue that has dominated the debate stage for the past few years. The importance of a nation's ability to redistribute wealth in order to implement social welfare programs, maintain public goods, and drive economic development has brought various conversations to the political arena. A country's means of redistributing wealth comes from the implementation of a carefully thought out well described system of taxation. The implementation of such a system would aid in achieving the desired social and economic objective of diminishing social inequality and maximizing social welfare. There are various ways to impose a tax system that will help create a more efficient allocation of resources, in particular, many democratic, even socialist governments utilize a progressive system of taxation to achieve a certain level of income redistribution. In addition to the creation and implementation of these tax systems, "globalization of the world economy [has] provided incentives for reforming the tax systems" across the globe.[30] Along with utilizing a system of taxation to achieve the redistribution of wealth, the same socio-economic benefit can be achieved if there are appropriate policies enacted within a current political infrastructure that addresses these issues. Modern thinking towards the topic of the redistribution of wealth, focuses on the concept that economic development increases thestandard of living across an entire society.
Today, income redistribution occurs in some form in mostdemocratic countries, through economic policies. Some redistributive policies attempt to take wealth, income, and other resources from the "haves" and give them to the "have-nots", but many redistributions go elsewhere.
Furthermore, redistribution is discussed in the realm ofsustainability science, sometimes even considered as a fundamentalsustainability strategy.[31] Scholars such as Iris Borowy argue that ‘some form of absolute international redistribution’ is necessary, ‘in which the rich experience an actual reduction in their material income and wealth, the newly emerging societies accept stagnating levels while those at the bottom improve their standards’.[32] However, such large scale international redistribution for purposes of sustainability cannot yet be observed.[32]
For example, the U.S. government'sprogressive-rate income tax policy is redistributive because much tax revenue goes to social programs such as welfare andMedicare.[33]
In aprogressive income tax system, a high income earner will pay a higher tax rate (a larger percentage of their income) than a low income earner; and therefore, will pay more total dollars per person.[34]
Other taxation-based methods of redistributing income are thenegative income tax for very low income earners andtax loopholes (tax avoidance) for the better-off.
Two other common types of governmental redistribution of income aresubsidies andvouchers (such asfood stamps orSection-8 housing vouchers). Thesetransfer payment programs are funded through general taxation, but benefit the poor or influential special interest groups and corporations.[35] While the persons receiving transfers from such programs may prefer to be directly given cash, these programs may be more palatable to society than cash assistance, as they give society some measure of control over how the funds are spent.[36]
Governmental redistribution of income may include a direct benefit program involving either cash transfers or the purchase of specific services for an individual.Medicare is one example.[37] Medicare is a government-run health insurance program that covers people age 65 or older, certain younger people with disabilities, and people withend-stage renal disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD). This is a direct benefit program because the government is directly providing health insurance for those who qualify.
The difference between theGini index for theincome distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation.[citation needed]
Wealth redistribution can be implemented throughland reform that transfers ownership of land from one category of people to another, or throughinheritance taxes,land value taxes or a broaderwealth tax on assets in general. Before-and-after Gini coefficients for thedistribution of wealth can be compared.
Interventions like rent control can impose large costs. Some alternative forms of interventions, such as housing subsidies, may achieve comparable distributional objectives at less cost. If the government cannot costlesslyredistribute, it should look for efficient ways of redistributing—that is, ways that reduce the costs as much as possible. This is one of the main concerns of the branch of economics called the economics of the public sector.[38]
One study suggests that "the middle class faces a paradoxical status" in that they tend to vote against income redistribution, even though they would benefit economically from it.[39]
The objectives of income redistribution are to increase economic stability and opportunity for the less wealthy members of society and thus usually include the funding ofpublic services.
One basis for redistribution is the concept ofdistributive justice, whose premise is that money and resources ought to be distributed in such a way as to lead to asocially just, and possibly more financiallyegalitarian, society. Another argument is that a largermiddle class benefits an economy by enabling more people to beconsumers, while providing equal opportunities for individuals to reach a better standard of living. Seen for example in the work ofJohn Rawls,[citation needed] another argument is that a truly fair society would be organized in a manner benefiting the least advantaged, and any inequality would be permissible only to the extent that it benefits the least advantaged.
Some proponents of redistribution argue thatcapitalism results in anexternality that creates unequal wealth distribution.[40]
Many economists have argued that wealth and income inequality are a cause ofeconomic crises,[41] and that reducing these inequalities is one way to prevent or ameliorate economic crises, with redistribution thus benefiting the economy overall. This view was associated with theunderconsumptionism school in the 19th century, now considered an aspect of some schools ofKeynesian economics; it has also been advanced, for different reasons, byMarxian economics. It was particularly advanced in the US in the 1920s byWaddill Catchings andWilliam Trufant Foster.[42][43] More recently, the so-called "Rajan hypothesis"[44] posited that income inequality was at the basis of the explosion of the2008 financial crisis.[45] The reason is that rising inequality caused people on low and middle incomes, particularly in the US, to increase their debt to keep up their consumption levels with that of richer people. Borrowing was particularly high in thehousing market and deregulation in the financial sector made it possible to extend lending insub-prime mortgages. The downturn in the housing market in 2007 halted this process and triggered the2008 financial crisis. Nobel Prize laureateJoseph Stiglitz, along with many others,[44] supports this view.[46]
There is currently a debate concerning the extent to which the world's extremely rich have become richer over recent decades.Thomas Piketty'sCapital in the Twenty-First Century is at the forefront of the debate, mainly focusing on within-country concentration of income and wealth.Branko Milanovic provided evidence of increasing inequality at the global level, showing how the group of so-called "globalplutocrats", i.e. the richest 1% in the world income distribution, were the main beneficiaries of economic growth in the period 1988–2008.[47] More recent analysis supports this claim, as 27% of total economic growth worldwide accrued to the top 1% of the world income distribution in the period 1980–2016.[48] The approach underpinning these analyses has been critiqued in certain publications such asThe Economist.[49]
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Peter Singer's argument contrasts to Thomas Pogge's in that he states we have an individual moral obligation to help the poor.[50][51]The rich people who are living in the states with more redistribution, are more in favor of immigrants than poorer people, because this can make them pay less wages.[52]
Public choice theory states that redistribution tends to benefit those with political clout to set spending priorities more than those in need, who lack real influence on government.[53]
The socialist economistsJohn Roemer andPranab Bardhan criticize redistribution via taxation in the context ofNordic-stylesocial democracy, reportedly highlighting its limited success at promoting relativeegalitarianism and its lack of sustainability. They point out that social democracy requires a strong labor movement to sustain its heavy redistribution, and that it is unrealistic to expect such redistribution to be feasible in countries with weaker labor movements. They point out that, even in the Scandinavian countries, social democracy has been in decline since thelabor movement weakened. Instead, Roemer and Bardhan argue that changing the patterns of enterprise ownership andmarket socialism, obviating the need for redistribution, would be more sustainable and effective at promoting egalitarianism.[54]
Marxian economists[55] argue thatsocial democratic reforms – including policies to redistribute income – such as unemployment benefits and high taxes on profits and the wealthy create more contradictions in capitalism by further limiting the efficiency of the capitalist system via reducing incentives for capitalists to invest in further production.[56] In the Marxist view, redistribution cannot resolve the fundamental issues of capitalism – only a transition to asocialist economy can.Income redistribution willlower poverty by reducing inequality, if done properly. But it may not accelerate growth in any major way, except perhaps by reducing social tensions arising from inequality and allowing poor people to devote more resources to human and physical asset accumulation. Directly investing in opportunities for poor people is essential.[57]
The distribution of income that emerges from competitive markets may be very unequal. However, under theconditions of the basic competitive model, a redistribution of wealth can move the economy to a more equal allocation that is also Pareto efficient.[58]
Lists:
Opposite tendencies:
Thesocial mechanism, such as a change in tax laws, monetary policies, or tort law, that engenders the redistribution of goods among these subjects
Economies vary based on the extent to which and the methods by which governments intervene to redistribute income. This depends partly on how unequal income is to begin with before any redistributive policies are implemented. Thus the Japanese government does much less redistributing than the governments of many other capitalist countries because Japan has a more equal distribution of wages than most other capitalist countries. Command socialist economies also have had less income redistribution because governments initially control the distribution of income by setting wages and forbidding capital or land income.
Accordingly, three main classes, including the upper class, the middle class, and the lower class have been divided and their attitudes towards redistribution of wealth (as a non-conservative policy) have been evaluated. Given the current economic inequality, in the case of adopting the policy of redistribution of the wealth, the lower and middle classes will benefit economically, since they possess less wealth than their population percentage. Nevertheless, the results of the survey revealed that only the lower class assented to redistribution of the wealth, while upper and middle classes largely dissented to it.
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