The Public Economics of Redistribution and the Welfare State
Agnar SANDMO

This article gives a broad survey of the arguments why governments should engage in large-scale redistribution, as they do, e.g., in the Scandinavian countries. Official data for redistribution via government budgets tend to overstate its magnitude, since much of the aggregate volume is due to income smoothing, which is really a substitute for private saving and insurance. The arguments in support of socialized saving and insurance must basically be about market failure, while the amount of net interpersonal redistribution must be based on a calculation of the trade-off between efficiency and equity. The optimal degree of income equalization depends on the efficiency cost of the tax system.

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