Different Assumptions,Different Conclusions Everyone has the same utility function,different opportunities to earn money.->DMU across people Everyone has the same opportunities to earn money,different utility functions.->Rich have a higher value for an additional dollar than poor That is why they are rich
Different Assumptions, Different Conclusions • Everyone has the same utility function, different opportunities to earn money. —> DMU across people • Everyone has the same opportunities to earn money, different utility functions. —>Rich have a higher value for an additional dollar than poor That is why they are rich
The Cost of Redistribution Reduces the incentive to do productive things for both rich and poor, since earning an extra dollar only increases consumption by(say)S.80 Rent Seeking more generally.Increases the incentive to: Lobby to increase or decrease redistribution Spend resources figuring out how to reduce your taxes Spend resources figuring out how to increase your subsidy How important that is depends on elasticity at both ends.How sensitive is the transfer you make or get to your efforts
The Cost of Redistribution • Reduces the incentive to do productive things for both rich and poor, since earning an extra dollar only increases consumption by (say) $.80 • Rent Seeking more generally. Increases the incentive to: • Lobby to increase or decrease redistribution • Spend resources figuring out how to reduce your taxes • Spend resources figuring out how to increase your subsidy • How important that is depends on elasticity at both ends. How sensitive is the transfer you make or get to your efforts