Income Redistribution in a Federal System

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SBR-9904103Project AbstractThis project examines income redistribution in a system of jurisdictions. Income redistribution or assisting the poor has received a great deal of attention from scholars and policymakers as well. While income redistribution in general is understood well due to a large body of research, redistribution in a federal system has a prominent feature that a general analysis of income redistribution does not address. That is, the poor recipients may move in response to the difference in the level of assistance between jurisdictions in a federal system. As a result, in making redistributive policies, each jurisdiction must take into account the consequences of its redistributive policy on the reallocation of the poor among jurisdictions. This feature makes the analysis of redistribution in a federal system intriguing and complicated. Some of the issues surrounding income redistribution in a system of jurisdictions have been explored. However, other important issues have yet to be analyzed, and the proposed research project will consider three interrelated aspects of income redistribution in a federal system.First, the project investigates how the extent of redistribution in a jurisdiction depends on the objectives of redistributive policies. Preliminary results have shown that the extent of redistribution varies considerably with the goals of policies such as the level of welfare benefits, the number of welfare recipients, or total welfare expenditures.Second, private donations have played an important role in assisting the poor, and the analysis incorporates private donations into income redistribution in a federal system. The government for each jurisdiction must consider how private donors react to policies. Such consideration appears to significantly affect the crowding-out effect and the efficiency of income redistribution.Third, the project analyzes the effects of mobility of other factors on income redistribution. In a federal system, not only the poor recipients but also other resources, notably capital, move between jurisdictions. The mobility of other factors may turn out to have important implications for redistributive policies.