Redistribution of income and wealth

Redistribution of income and redistribution of wealth are respectively the transfer of income and of wealth (including physical property) from some individuals to others by means of a social mechanism such as taxation, charity, welfare, public services, land reform, monetary policies, confiscation, divorce or tort law.[2] The term typically refers to redistribution on an economy-wide basis rather than between selected individuals.

Interpretations of the phrase vary, depending on personal perspectives, political ideologies and the selective use of statistics.[3] It is frequently heard in politics, usually referring to perceived redistributions from those who have more to those who have less. Occasionally, however, it is used to describe laws or policies that cause opposite redistributions that shift monetary burdens from wealthy to low-income individuals.[4]

The phrase can be emotionally charged and used to exaggerate or misconstrue the motivations of opponents during political debates. For example, if an individual politician calls for increased taxes on higher income individuals, their sole focus may be to raise funds for specific government programs, tapping the largest available sources while realizing that low-wage workers have little or no excess income to draw tax revenues from. Political opponents might argue that this politician's prime motivation is to redistribute wealth, when redistribution is not their goal.

The phrase is often coupled with the term "class warfare," with high income earners and the wealthy portrayed as victims of unfairness and discrimination.[5]

Redistribution tax policy should not be confused with predistribution policies. "Predistribution" is the idea that the state should try to prevent inequalities 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 a living wage, not just a minimum wage, as a "bottom-up" response to widespread income inequalities or high poverty rates.

Many alternate taxation proposals have been floated without the political will to alter the status quo. One example is the proposed "Buffett Rule", which is a hybrid taxation model composed of opposing systems, intended to minimize the favoritism of the special interest tax design.

The effects of a redistribution system are actively debated on ethical and economic grounds. The subject includes analysis of its rationales, objectives, means, and policy effectiveness.[6][7]

Income Tax Germany 2010
German progressive tax rates for different incomes. Progressive tax systems require the rich to pay taxes at higher rates, to make it possible to raise larger total sums to pay for governmental functions.[1] Some argue such systems are primarily for wealth redistribution.

History

In ancient times, redistribution operated as a palace economy.[8] These economies were centrally based around the administration, so the dictator or pharaoh had both the ability and the right to say who was taxed and who got special treatment.

Another early form of wealth redistribution occurred in Plymouth Colony under the leadership of William Bradford.[9] Bradford records in his diary that this "common course"[9] bred confusion, discontent, distrust, and the colonists looked upon it as a form of slavery.[10]

A closely related term, distributism (also known as distributionism or distributivism), is an economic ideology that developed in Europe in the late 19th and early 20th century based upon the principles of Catholic social teaching, especially the teachings of Pope Leo XIII in his encyclical Rerum novarum and Pope Pius XI in Quadragesimo anno. More recently, Pope Francis in his Evangelii Gaudium, echoed the earlier Papal statements.[11]

Role in economic systems

Different types of economic systems feature varying degrees of interventionism aimed at redistributing income, depending on how unequal their initial distributions of income are. Free-market capitalist 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 than Western economies. Likewise, the socialist planned economies of the former Soviet Union and Eastern bloc featured very little income redistribution because private capital and land income – 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.[12]

Modern forms of redistribution

Today, income redistribution occurs in some form in most democratic 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.

In his article Redistribution,[13] Dwight R. Lee states:

“…most government transfers are not from the rich to the poor. Instead, government takes from the relatively unorganized (e.g., consumers and general taxpayers) and gives to the relatively organized (groups politically organized around common interests, such as the elderly, sugar farmers, and steel producers). The most important factor in determining the pattern of redistribution appears to be political influence, not poverty. “

“The direct transfer of cash and services is only one way that government transfers income. Another way is by restricting competition among producers. The inevitable consequence—indeed, the intended consequence—of these restrictions is to enrich organized groups of producers at the expense of consumers. Here, the transfers are more perverse than with Medicare and Social Security. They help relatively wealthy producers at the expense of relatively poor (and, in some cases, absolutely poor) consumers. Many government restrictions on agricultural production, for example, allow farmers to capture billions of consumer dollars through higher food prices (see agricultural subsidy programs). Most of these dollars go to relatively few large farms, whose owners are far wealthier than the average taxpayer and consumer (or the average farmer). Also, wealthy farmers receive most of the government’s direct agricultural subsidies."

Some consider the U.S. government’s progressive-rate income tax policy as redistributive, because some of the tax revenue goes to social programs such as welfare and Medicare.[14]

In a progressive 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.[15]

Other taxation-based methods of redistributing income are the negative income tax for very low income earners and tax loopholes (tax avoidance) for the better-off.

Two other common types of governmental redistribution of income are subsidies and vouchers (such as food stamps). These transfer payment programs are funded through general taxation, but benefit the poor or influential special interest groups and corporations.[13] 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.[16]

It has been argued that the U.S. Social Security program redistributes income from the rich to the poor, but the majority of those receiving Social Security earned their benefits through tax withholding from their paychecks or quarterly income statements, and most benefits are indexed to the actual earning levels of individual workers. Only the highest- and lowest-income workers fall outside normal rates. In addition, Social Security deductions are only taken from the first $200,000 in income, with nothing further taken from higher incomes over that amount. In other words, a person who earns $100 million a year pays the same Social Security tax as another worker who earns $200,000 a year.

Contrary to popular belief, a recent study[17] found that, overall, the Social Security System was slightly regressive against the poor and not redistributive, once important factors were taken into account (for example, the longer life expectancy of the wealthy when compared to the poor gives them more years to collect benefits).

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.[18] Medicare is a government-run health insurance program that covers people age 65 or older, certain younger people with disabilities, and people with end-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 the Gini index for the income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation.

Wealth redistribution can be implemented through land reform that transfers ownership of land from one category of people to another, or through inheritance taxes or direct wealth taxes. Before-and-after Gini coefficients for the distribution of wealth can be compared.

Objectives

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 of public services.

One basis for redistribution is the concept of distributive justice, whose premise is that money and resources ought to be distributed in such a way as to lead to a socially just, and possibly more financially egalitarian, society. Another argument is that a larger middle class benefits an economy by enabling more people to be consumers, while providing equal opportunities for individuals to reach a better standard of living. Seen for example in the work of John Rawls, 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 that capitalism results in an externality that creates unequal wealth distribution.[19]

Some argue that wealth and income inequality are a cause of economic crises, 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 the underconsumptionism school in the 19th century, now considered an aspect of some schools of Keynesian economics; it has also been advanced, for different reasons, by Marxian economics. It was particularly advanced in the US in the 1920s by Waddill Catchings and William Trufant Foster.[20][21] There is currently a great debate concerning the extent to which the world's extremely rich have become richer over recent decades. Thomas Piketty's Capital in the Twenty-First Century is at the forefront, critiqued in certain publications such as The Economist.[22]

Moral obligation

Peter Singer's argument contrasts to Thomas Pogge's in that he states we have an individual moral obligation to help the poor.[23][24]

Economic effects of inequality

Number of High Net Worth Individuals, 2011 v4
Number of high-net-worth individuals in the world in 2011[25]

Using statistics from 23 developed countries and the 50 states of the US, British researchers Richard G. Wilkinson and Kate Pickett show a correlation between income inequality and higher rates of health and social problems (obesity, mental illness, homicides, teenage births, incarceration, child conflict, drug use), and lower rates of social goods (life expectancy, educational performance, trust among strangers, women's status, social mobility, even numbers of patents issued per capita), on the other.[26] The authors argue inequality leads to the social ills through the psychosocial stress, status anxiety it creates.[27]

A 2011 report by the International Monetary Fund by Andrew G. Berg and Jonathan D. Ostry found a strong association between lower levels of inequality and sustained periods of economic growth. Developing countries (such as Brazil, Cameroon, Jordan) with high inequality have "succeeded in initiating growth at high rates for a few years" but "longer growth spells are robustly associated with more equality in the income distribution."[28][29]

Criticism

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.[30]

The socialist economists John Roemer and Pranab Bardhan criticize redistribution via taxation in the context of Nordic-style social democracy, highlighting its limited success at promoting relative egalitarianism 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 the labor movement weakened. Instead, Roemer and Bardhan argue that changing the patterns of enterprise ownership and market socialism, obviating the need for redistribution, would be more sustainable and effective at promoting egalitarianism.[31]

Marxian economists argue that social 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.[32] In the Marxist view, redistribution cannot resolve the fundamental issues of capitalism – only a transition to a socialist economy can.

See also

Lists:

Opposite tendencies:

References

  1. ^ Investopedia. "The Advantages of a Progressive Tax". Retrieved 7 May 2017.
  2. ^ "Redistribution". Stanford Encyclopedia of Philosophy. Stanford University. 2 July 2004. Retrieved 13 August 2010. The social mechanism, such as a change in tax laws, monetary policies, or tort law, that engenders the redistribution of goods among these subjects
  3. ^ Kessler, Glenn. "Fact Checker: Elizabeth Warren's claim that the bottom 90 percent got 'zero percent' of wage growth after Reagan". Washington Post. Retrieved 7 May 2017.
  4. ^ Reich, Robert (2017-05-04). "Trump's Stock in Trade is Cruelty. Count the ways". Newsweek. Retrieved 7 May 2017.
  5. ^ FAIR (July 2009). "For Media, 'Class War' Has Wealthy Victims, Rich getting richer seldom labeled as belligerents". Retrieved 8 May 2017.
  6. ^ F.A. Cowell ([1987] 2008). "redistribution of income and wealth," The New Palgrave Dictionary of Economics, 2nd Edition, TOC.
  7. ^ Rugaber, Christopher S.; Boak, Josh (January 27, 2014). "Wealth gap: A guide to what it is, why it matters". AP News. Retrieved January 27, 2014.
  8. ^ de Blois, Lukas; R.J. van der Spek (1997). An Introduction to the Ancient World. Translated by Susan Mellor. Routledge. pp. 56–60. ISBN 978-0-415-12773-8.
  9. ^ a b "William Bradford – Facts & Summary". History.com. Retrieved 3 January 2017.
  10. ^ History of Plymouth Plantation, p. 135
  11. ^ Hunt III, Arthur W. "Pope Francis Needs Distributism: Americans and popes alike can embrace a humane alternative to modern capitalism". The American Conservative. Retrieved 8 May 2017.
  12. ^ Rosser, Mariana V. and J Barkley Jr. (July 23, 2003). Comparative Economics in a Transforming World Economy. MIT Press. p. 11. ISBN 978-0262182348. 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.
  13. ^ a b Lee, Dwight R. "Redistribution". Library of Economics and Liberty. Missing or empty |url= (help)
  14. ^ Barbour, Christine, and Gerald C. Wright. Keeping the Republic: Power and Citizenship in American Politics. 7th ed.: CQ, 2016.
  15. ^ Prante, Gerald, and Scott A. Hodge. "The Distribution of Tax and Spending Policies in the United States." Tax Foundation. N.p., 13 Nov. 2013. Web.
  16. ^ Harvey S. Rosen & Ted Gayer, Public Finance pp. 271–72 (2010).
  17. ^ Balls, Andrew. "Social Security Does Not Redistribute Income". National Bureau of Economic Research. Retrieved 8 May 2017.
  18. ^ Rector, Robert. "The Redistributive State: The Allocation of Government Benefits, Services, and Taxes in the United States." The Heritage Foundation. N.p., 15 Sept. 2015. Web.
  19. ^ Marx, K. A. ,Contribution to the Critique of Political Economy. Progress Publishers, Moscow, 1977
  20. ^ (Dorfman 1959)
  21. ^ Allgoewer, Elisabeth (May 2002). "Underconsumption theories and Keynesian economics. Interpretations of the Great Depression" (PDF). Discussion paper no. 2002-14. University of St. Gallen.
  22. ^ "Forget the 1%; Free Exchange", The Economist, 8 November 2014, p. 79.
  23. ^ Stafforini, Pablo. "Famine, Affluence, and Morality, by Peter Singer". Retrieved 3 January 2017.
  24. ^ "Fighting Poverty". Retrieved 3 January 2017.
  25. ^ http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf
  26. ^ "The Spirit Level - The Equality Trust". Retrieved 3 January 2017.
  27. ^ "The Spirit Level: how 'ideas wreckers' turned book into political punchbag", Robert Booth, The Guardian, 13 August 2010
  28. ^ "Inequality and Unsustainable Growth: Two Sides of the Same Coin?" Andrew G. Berg and Jonathan D. Ostry, IMF Staff Discussion Note, April 8, 2011
  29. ^ Berg, Andrew G.; Ostry, Jonathan D. (2011). "Equality and Efficiency". Finance and Development. International Monetary Fund. 48 (3). Retrieved September 10, 2012.
  30. ^ Plotnick, Robert (1986) "An Interest Group Model of Direct Income Redistribution", The Review of Economics and Statistics, vol. 68, no. 4, pp. 594–602.
  31. ^ "Market socialism, a case for rejuvenation", by Pranab Bardhan and Johen E. Roemer. 1992. Journal of Economic Perspectives, vol. 6, no. 3, p. 104: "Since it (social democracy) permits a powerful capitalist class to exist (90 percent of productive assets are privately owned in Sweden), only a strong and unified labor movement can win the redistribution through taxes that is characteristic of social democracy. It is idealistic to believe that tax concessions of this magnitude can be effected simply through electoral democracy without an organized labor movement, when capitalists organize and finance influential political parties. Even in the Scandinavian countries, strong apex labor organizations have been difficult to sustain and social democracy is somewhat on the decline now."
  32. ^ Market Socialism: The Debate Among Socialists, by Schweickart, David; Lawler, James; Ticktin, Hillel; Ollman, Bertell. 1998. pp. 60–61: "The Marxist answers that...it involves limiting the incentive system of the market through providing minimum wages, high levels of unemployment insurance, reducing the size of the reserve army of labour, taxing profits, and taxing the wealthy. As a result, capitalists will have little incentive to invest and the workers will have little incentive to work. Capitalism works because, as Marx remarked, it is a system of economic force (coercion)."
Basic income

Basic Income, also called Universal Basic Income (UBI), Citizen's Income (CI), Citizen's Basic Income (CBI) (in the United Kingdom), Basic Income Guarantee (BIG) (in the United States and Canada), or Universal Demogrant, is a periodic cash payment delivered to all on an individual basis, without means test or work requirement. The incomes would be:

Unconditional: A Basic Income would vary with age, but with no other conditions, so everyone of the same age would receive the same Basic Income, whatever their gender, employment status, family structure, contribution to society, housing costs, or anything else.

Automatic: Someone’s Basic Income would be paid weekly or monthly, automatically, into a bank account or similar.

Non-withdrawable: Basic Incomes would not be means-tested. Whether someone's earnings increase, decrease, or stay the same, their Basic Income will not change.

Individual: Basic Incomes would be paid on an individual basis, and not on the basis of a couple or household.

As a right: Everybody legally resident would receive a Basic Income, subject to a minimum period of legal residency, and continuing residency for most of the year.Basic income can be implemented nationally, regionally or locally. An unconditional income that is sufficient to meet a person's basic needs (at or above the poverty line), is sometimes called a Full Basic Income, while if it is less than that amount, it is sometimes called Partial. A welfare system with some characteristics similar to those of a Basic Income is a negative income tax, in which the government stipend is gradually reduced with higher labour income.

Some welfare systems are sometimes regarded as steps on the way to a Basic Income, but because they have conditionalities attached they are not Basic Incomes. If they raise household incomes to specified minima they are called guaranteed minimum income systems. For example, Bolsa Família in Brazil is restricted to poor families and the children are obligated to attend school.Several political discussions are related to the basic income debate. Examples include the debates regarding robotisation, AI (artificial intelligence), and the future of work. A key issue in these debates is whether robotisation and AI will significantly reduce the number of available jobs. Basic income often comes up as a proposal in these discussions.

Christianity and politics

The relationship between Christianity and politics is a historically complex subject and a frequent source of disagreement throughout the history of Christianity, as well as in modern politics between the Christian right and Christian left. There have been a wide variety of ways in which thinkers have conceived of the relationship between Christianity and politics, with many arguing that Christianity directly supports a particular political ideology or philosophy. Along these lines, various thinkers have argued for Christian communism, Christian socialism, Christian anarchism, Christian libertarianism, or Christian democracy. Others believe that Christians should have little interest or participation in politics or government.

Colombian Social Democratic Party

The Colombian Social Democratic Party (Partido Socialdemócrata Colombiano) is a political party (centre-left) in Colombia.

A social democracy is a political ideology that supports economic and social interventions to promote social justice within the framework of a capitalist economy, and a policy regime involving welfare state provisions, collective bargaining arrangements, regulation of the economy in the general interest, redistribution of income and wealth, and a commitment to representative democracy.

In the 2002 legislative elections, the party was one of the many small parties to achieve parliamentary representation.

Denis Healey

Denis Winston Healey, Baron Healey, (30 August 1917 – 3 October 2015) was a British Labour Party politician who served as Secretary of State for Defence from 1964 to 1970, Chancellor of the Exchequer from 1974 to 1979 and Deputy Leader of the Labour Party from 1980 to 1983.

He was a Member of Parliament for 40 years (from 1952 until his retirement in 1992) and was the last surviving member of the cabinet formed by Harold Wilson after the Labour Party's victory in the 1964 general election. A major figure in the party, he was twice defeated in bids for the party leadership.

To the public at large, Healey became well known for his bushy eyebrows and his creative turns of phrase.

Olaf Nicolai

Olaf Nicolai (born 1962 in Halle an der Saale) is a German conceptual artist.

Patrick Ground

Reginald Patrick Ground, known as Patrick Ground QC (born 9 August 1932) is a British Conservative politician and barrister.

Poverty

Poverty is the scarcity or the lack of a certain (variant) amount of material possessions or money. Poverty is a multifaceted concept, which may include social, economic, and political elements. Absolute poverty, extreme poverty, or destitution refers to the complete lack of the means necessary to meet basic personal needs such as food, clothing and shelter.The threshold at which absolute poverty is defined is considered to be about the same, independent of the person's permanent location or era. On the other hand, relative poverty occurs when a person who lives in a given country does not enjoy a certain minimum level of "living standards" as compared to the rest of the population of that country. Therefore, the threshold at which relative poverty is defined varies from country to another, or from one society to another.Providing basic needs can be restricted by constraints on government's ability to deliver services, such as corruption, tax avoidance, debt and loan conditionalities and by the brain drain of health care and educational professionals. Strategies of increasing income to make basic needs more affordable typically include welfare, economic freedoms and providing financial services.Poverty reduction is still a major issue (or a target) for many international organizations such as the United Nations, the World Bank, United States Agency for International Development, Oxfam, CARE, World Vision International, the Bill and Melinda Gates Foundation, and the Red Cross among a plethora of others.

Poverty reduction

Poverty reduction, or poverty alleviation, is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty.

Measures, like those promoted by Henry George in his economics classic Progress and Poverty, are those that raise, or are intended to raise, ways of enabling the poor to create wealth for themselves as a means of ending poverty forever. In modern times, various economists within the Georgism movement propose measures like the land value tax to enhance access to the natural world for all. Poverty occurs in both developing countries and developed countries. While poverty is much more widespread in developing countries, both types of countries undertake poverty reduction measures.

Poverty has been historically accepted in some parts of the world as inevitable as non-industrialized economies produced very little, while populations grew almost as fast, making wealth scarce. Geoffrey Parker wrote that In Antwerp and Lyon, two of the largest cities in western Europe, by 1600 three-quarters of the total population were too poor to pay taxes, and therefore likely to need relief in times of crisis. Poverty reduction occurs largely as a result of overall economic growth. Food shortages were common before modern agricultural technology and in places that lack them today, such as nitrogen fertilizers, pesticides and irrigation methods. The dawn of industrial revolution led to high economic growth, eliminating mass poverty in what is now considered the developed world. World GDP per person quintupled during the 20th century. In 1820, 75% of humanity lived on less than a dollar a day, while in 2001, only about 20% did.Today, continued economic development is constrained by the lack of economic freedoms. Economic liberalization requires extending property rights to the poor, especially to land. Financial services, notably savings, can be made accessible to the poor through technology, such as mobile banking. Inefficient institutions, corruption, and political instability can also discourage investment. Aid and government support in health, education, and infrastructure helps growth by increasing human and physical capital.Poverty alleviation also involves improving the living conditions of people who are already poor. Aid, particularly in the medical and scientific areas, is essential in providing better lives, such as the Green Revolution and the eradication of smallpox. Problems with today's development aid include the high proportion of tied aid, which mandates receiving nations to buy products, often more expensive, originating only from donor countries. Nevertheless, some believe (Peter Singer in his book The Life You Can Save) that small changes in the way each of us in affluent nations lives our lives could solve world poverty.

Progressive tax

A progressive tax is a tax in which the average tax rate (taxes paid ÷ personal income) increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax, where the average tax rate or burden decreases as an individual's ability to pay increases.The term is frequently applied in reference to personal income taxes, in which people with lower income pay a lower percentage of that income in tax than do those with higher income. It can also apply to adjustments of the tax base by using tax exemptions, tax credits, or selective taxation that creates progressive distribution effects. For example, a wealth or property tax, a sales tax on luxury goods, or the exemption of sales taxes on basic necessities, may be described as having progressive effects as it increases the tax burden of higher income families and reduces it on lower income families.Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher income inequality, as the tax structure reduces inequality, but economists disagree on the tax policy's economic and long-term effects. One study suggests progressive taxation can be positively associated with happiness, the subjective well-being of nations and citizen satisfaction with public goods, such as education and transportation.

Public economics

Public economics (or economics of the public sector) is the study of government policy through the lens of economic efficiency and equity.

At its most basic level, public economics provides a framework for thinking about whether or not the government should participate in economic markets and to what extent it should do so. In order to do this, microeconomic theory is utilized to assess whether the private market is likely to provide efficient outcomes in the absence of governmental interference. Inherently, this study involves the analysis of government taxation and expenditures. This subject encompasses a host of topics including market failures, externalities, and the creation and implementation of government policy. Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare.Broad methods and topics include:

the theory and application of public finance

analysis and design of public policy

distributional effects of taxation and government expenditures

analysis of market failure and government failure.Emphasis is on analytical and scientific methods and normative-ethical analysis, as distinguished from ideology. Examples of topics covered are tax incidence, optimal taxation, and the theory of public goods.

Public finance

Public finance is the study of the role of the government in the economy. It is the branch of economics which assesses the government revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones.The purview of public finance is considered to be threefold: governmental effects on (1) efficient allocation of resources, (2) distribution of income, and (3) macroeconomic stabilization.

Redistributive justice

Redistributive justice is the equalization of property and wealth ownership by direct political fiat. It includes taxation designed to move wealth from one group to another, "land reform" and other means to promote "equality”. It is frequently associated with Marxism, socialism, or the transition from aristocracy or other form of oligarchy to more broadly based governments.Justice is relative in this regard as to the beneficiary of the redistribution versus the donor/s and may not reflect concepts of social justice. The source of the wealth to be redistributed is therefore an important component of the actual justice of the redistribution. Whether the donation is voluntary or being co-opted by force is a key determination of justice. Redistributive justice is appealed to when wealth redistribution is justified on utilitarian grounds and when these grounds are used to override individual rights and property rights.We should distinguish between distributive and redistributive systems. Distributive justice is where the government has an income or an asset that it owns (e.g. oil reserves) and it distributes the wealth as it sees fit to its concept of justice. Redistributive justice is exercised by government through taxation or expropriation of property. Redistributive justice removes wealth from some members of society under the government's jurisdiction through governmental powers, for the benefit of others whom the government determines as in need or deserving.

Transfer payment

In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. Examples of transfer payments include welfare, financial aid, social security, and government making subsidies for certain businesses.

For the purpose of calculating gross domestic product (GDP), government spending does not include transfer payments, which are the reallocation of money from one party to another rather than expenditure on newly produced goods and services.

Wealth tax

A wealth tax (also called a capital tax or equity tax) is a levy on the total value of personal assets, including: bank deposits, real estate, assets in insurance and pension plans, ownership of unincorporated businesses, financial securities, and personal trusts. Typically liabilities (primarily mortgages and other loans) are deducted, hence it is sometimes called a net wealth tax.

A wealth tax taxes the accumulated stock of purchasing power, in contrast to income tax, which is a tax on the flow of assets (a change in stock). Whereas income taxes typically require "realization" (or a sale) of appreciated property before taxing income from the increase in value, wealth taxes tax appreciation in property without regard to realization.

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