TY - JOUR AU - Kopczuk,Wojciech AU - Slemrod,Joel AU - Yitzhaki,Shlomo TI - Why World Redistribution Fails JF - National Bureau of Economic Research Working Paper Series VL - No. 9186 PY - 2002 Y2 - September 2002 UR - http://www.nber.org/papers/w9186 L1 - http://www.nber.org/papers/w9186.pdf N1 - Author contact info: Wojciech Kopczuk Columbia University 420 West 118th Street, Rm. 1022 IAB MC 3323 New York, NY 10027 Tel: 212/854-2519 Fax: 212/864-8059 E-Mail: wk2110@columbia.edu Joel Slemrod University of Michigan Business School 701 Tappan Street Room R5396 Ann Arbor, MI 48109-1234 Tel: 734/936-3914 Fax: 734-615-4323 E-Mail: jslemrod@umich.edu Shlomo Yitzhaki Department of Economics Hebrew University Mount Scopus Jerusalem 91905 ISRAEL Tel: 972-2-659-2201 Fax: 972-2-652-2319 E-Mail: shlomo.yitzhaki@huji.ac.il AB - An optimal linear world income tax that maximizes a border-neutral social welfare function provides a drastic reduction in world consumption inequality, dropping the Gini coefficient from 0.69 to 0.25. In contrast an optimal decentralized (i.e., within countries) redistribution has miniscule effect on world income inequality. Thus, the traditional public finance concern about the excess burden of redistribution cannot explain why there is so little world redistribution. Actual foreign aid is vastly lower than the transfers under the simulated world income tax, suggesting that countries such as the United States either place a much lower value on the welfare of foreigners or else expect that a very significant fraction of cross-border transfers is wasted. The product of the welfare weight and one minus the share of transfers that are wasted constitutes an implied weight that the United States assigns to foreigners. We calculate that value to be as low as 1/2000 of the value put on the welfare of an American, suggesting that U.S. policy implicitly assumes either that essentially all transfers are wasted or places essentially no value on the welfare of the citizens of the poorest countries. ER -