THE COSTS OF PUBLIC INCOME REDISTRIBUTION
AND PRIVATE CHARITY
This is a long read, get a big cup of java :toast:
JAMES ROLPH EDWARDS
MOST ACADEMIC PARTICIPANTS IN the ongoing debate over income redistribution
are aware that it is not possible, ever, for government to tax
one set of persons and redistribute the same amount to a set of subsidy
recipients. Some fraction of each dollar taxed will always be
absorbed in wages and salaries of the administrative bureaucracy,
costs of purchasing, powering, maintaining and replacing equipment,
buildings, etc., and other overhead costs. Only the remainder will
actually be received by the target population in the form of cash or in
kind payments. Many advocates of compulsory income redistribution
have tended to ignore this inconvenient fact altogether in their
writings, however. Indeed, most of the public discussion proceeds
with an implicit assumption of costless, dollar-for-dollar income
transfers. Even some sophisticated supporters of the welfare state,
such as the British economist A.C. Pigou, have done this, as will be
shown below. Other sophisticated analysts, such as Arthur Okun
(1979, pp. 91?100), have simply asserted, without citing evidence, that
such ?leakages? are small, amounting to only a few cents per dollar.1
This erroneous view dominates the academic and political classes.
Of course it is also true of private charities dependent on voluntary
donations that they have costs absorbing part of their revenue,
but there is a huge difference in the efficiency with which they operate
relative to government. Contrary to Okun, public income redistribution
agencies are estimated to absorb about two-thirds of each
dollar budgeted to them in overhead costs, and in some cases as
much as three-quarters of each dollar. Using government data,
http://mises.org/journals/jls/21_2/21_2_1.pdf
AND PRIVATE CHARITY
This is a long read, get a big cup of java :toast:
JAMES ROLPH EDWARDS
MOST ACADEMIC PARTICIPANTS IN the ongoing debate over income redistribution
are aware that it is not possible, ever, for government to tax
one set of persons and redistribute the same amount to a set of subsidy
recipients. Some fraction of each dollar taxed will always be
absorbed in wages and salaries of the administrative bureaucracy,
costs of purchasing, powering, maintaining and replacing equipment,
buildings, etc., and other overhead costs. Only the remainder will
actually be received by the target population in the form of cash or in
kind payments. Many advocates of compulsory income redistribution
have tended to ignore this inconvenient fact altogether in their
writings, however. Indeed, most of the public discussion proceeds
with an implicit assumption of costless, dollar-for-dollar income
transfers. Even some sophisticated supporters of the welfare state,
such as the British economist A.C. Pigou, have done this, as will be
shown below. Other sophisticated analysts, such as Arthur Okun
(1979, pp. 91?100), have simply asserted, without citing evidence, that
such ?leakages? are small, amounting to only a few cents per dollar.1
This erroneous view dominates the academic and political classes.
Of course it is also true of private charities dependent on voluntary
donations that they have costs absorbing part of their revenue,
but there is a huge difference in the efficiency with which they operate
relative to government. Contrary to Okun, public income redistribution
agencies are estimated to absorb about two-thirds of each
dollar budgeted to them in overhead costs, and in some cases as
much as three-quarters of each dollar. Using government data,
http://mises.org/journals/jls/21_2/21_2_1.pdf
