Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Public Finance Implications of Economic Inequality
Journal of Economic Perspectives
(pp. 149–70)
(Complimentary)
Abstract
This paper considers questions about the implications of rising inequality for the theory and practice of public finance. It begins by addressing fundamental reasons why the distribution of income or wealth on an annual basis before taxes and transfers offers insufficient information: (1) it does not tell us what resources are actually available to households for consumption; and (2) in providing a snapshot of the resources available to individuals of different ages at a given moment in time, without controlling for life-cycle related differences or income dynamics, it can provide a misleading estimate of the underlying degree of inequality. The paper then considers the implications of high and perhaps rising economic inequality for the design of government policy: top marginal tax rates, phase-outs of government policies for those with higher incomes, the political economy of inequality, and other subjects.Citation
Auerbach, Alan J. 2025. "Public Finance Implications of Economic Inequality." Journal of Economic Perspectives 39 (2): 149–70. DOI: 10.1257/jep.20241421Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- E62 Fiscal Policy
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- I32 Measurement and Analysis of Poverty
- I38 Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs