Some theoretical aspects of optimum redistribution

Abstract

As its title suggests, the thesis considers various theoretical aspects of optimal government policy. The method is described in Chapter One: it is essentially that of `normative' public economics and provides the common theme of the remaining chapters. Chapters Two and Three are concerned with redistributive policy in general. Chapter Two discusses the use of observed information in redistributive policy. It derives the appropriate optimality conditions in simple models of redistribution, comparing the outcome with the existing theoretical literature and actual redistributive policy. Chapter Three considers quantities as redistributive tools, in contrast with the more usual concentration on incomes and prices. Chapter Four addresses the optimal taxation of wealth. To tax current wealth under optimal life-cycle saving may imply negative marginal tax rates at some point of the tax schedule, an outcome avoided when lifetime wealth is taxed directly. The principal theoretical obstacle to redistributing wealth is found to be the anticipation of tax implementation. Chapters Five and Six are both concerned with unemployment benefits. Chapter Five discusses them within the optimal policy framework. Attention is first concentrated on the optimal level of benefits and then on their optimal time pattern, in cases where they can vary with the duration of unemployment. Chapter Six digresses from the optimal policy format to discuss the macroeconomic role of unemployment benefits, arguing that the replacement ratio deserves a more explicit inclusion in the Keynesian income/expenditure analysis. Chapter Seven applies the optimal policy method to pension and retirement practices. The initial concern is whether or not formal pensions and retirement are theoretically justifiable as part of an optimal approach to policy. The discussion is then broadened to consider redistributive issues, within and between generations. Chapter Eight concludes