NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Can Equity and Efficiency Complement Each Other?

Rebecca M. Blank

NBER Working Paper No. 8820
Issued in February 2002
NBER Program(s):   LS   PE

Economists tend to assume that redistributive transfers increase equity but cause a loss in efficiency, the so-called 'leaky bucket' effect. This paper explores situations where efficiency losses are small or where equity and efficiency might even complement each other. A simple model identifies key parameters that cause leaky buckets and which policy can affect. Three situations are discussed where the equity/efficiency tradeoff may be low: When transfers go to populations with no capacity to change their behavior; when transfers go to programs that limit efficiency losses through behavioral requirements; and when commodities are subsidized that function as long-term investments and create future income gains.

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Document Object Identifier (DOI): 10.3386/w8820

Published: Blank, Rebecca M. "Can Equity And Efficiency Complement Each Other?" Labour Economics, September 2002, 9(4): 451-468

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