Apr 302012
 

Via Reihan Salam, here’s a bit from Greg Mankiw:

one reason that people differ in their incomes is that some people care more about having a high income than others…

Bryan [Caplan] goes on to suggest that to the extent this is true, it weakens the case for income redistribution.

He is absolutely right.  Most of the literature on optimal taxation and redistribution, following Mirrlees, assumes homogeneous preferences.  But Matthew Weinzierl has a recent paper on preference heterogeneity, which shows “ to the extent that variation in income is due to preference differences rather than productivity differences, the optimal extent of redistribution is lower, and the neglect of preference heterogeneity biases the results of conventional optimal tax analyses in favor of redistribution of income.”

Sure, but what about the flip side? Call it the striver phenomenon. Preferences for working aren’t homogeneous either. To the extent that some people get more utility out of working at a given task than others that should recommend relatively more redistribution, no?

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