Welfare economics suggests that the tax system is the appropriate place to effect redistribution from those with more command over material resources to those with less—that is, in short, to serve “equity.” Society should set other mechanisms of private and public law, including public finance systems, to maximize welfare—that is, in short, to serve “efficiency.” The populace, however, may not always accept first-best policies. Perspectives from cognitive psychology suggest that ordinary citizens can react to the purely formal means by which social policies are implemented, and thus may reject welfare-improving reforms.
This Article sets out the general background of the problem. We present the results of original experiments that confirm that the means of implementing redistribution affect its acceptability. Effects range from such seemingly trivial matters as whether or not tax burdens are discussed in dollars or in percent terms, to more substantial matters such as how many different individual taxes there are, whether the burden of taxes is transparent or not, and the nature and level of the public provision of goods and services. The findings suggest a deep and problematic tension between the goals of equity and efficiency in public finance.
Date of this Version
Edward J. McCaffery and Jonathan Baron, "The Political Psychology of Redistribution" (May 2005). University of Southern California Law and Economics Working Paper Series. Working Paper 30.