Forget (Arguing About) Redistribution
Reformers often argue that the benefits of ameliorating inequality are worth the cost in higher tax rates and reduced economic efficiency that redistributive social policy supposedly requires. This paper suggests that these arguments are mostly misplaced. Focusing solely on the marginal benefit of government- versus private-sector spending, there is ample reason to conclude that many governmental expenditures directed to reducing inequality are independently justifiable on the basis that they increase efficiency and, over time, more than pay for themselves. Because the efficiency argument directly addresses concerns that might otherwise counsel restraint in redistributive programs, treating the reduction of inequality as a worthwhile tradeoff against efficiency or higher tax rates is mostly counterproductive from a social policy perspective. In fact, the failure to adopt or enhance many spending programs itself represents a form of upward redistribution as measured from a baseline of social wealth maximization. This redistribution is difficult or impossible to justify from either a welfarist perspective or a libertarian one.
In making the argument, this paper develops the concept of budget policy endogeneity,” or the idea that in judging the affordability of various programs one must take into account the allocative and distributional effects of current spending on the future allocation of resources, since revenue for current projects may be raised in the future. If current spending enhances allocative efficiency, programs that can only be funded with borrowing today create the conditions for their relatively less burdensome repayment tomorrow.