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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