Academic journal article Indian Journal of Economics and Business

Does a Concern for Lowering National Gini Coefficients Justify Redistributionist Policies?

Academic journal article Indian Journal of Economics and Business

Does a Concern for Lowering National Gini Coefficients Justify Redistributionist Policies?

Article excerpt

We address whether a concern for lowering national Gini coefficients justifies implementing redistributionist policies. We explore the simple point that national Gini coefficients are largely determined by political demarcation and calculate the Gini coefficient for two hypothetical countries. First we show that even if U.S. states had perfect equality in each state, current differences in average income between states lead to a countrywide Gini coefficient greater than zero. Next we estimate the Gini coefficient for Europe as a whole by looking at income per quintile in 29 nations. Even though individual European countries typically have low Gini coefficients, the Gini coefficient for Europe as a whole is actually higher than that of the United States. If lowering national Gini coefficients is the ultimate goal, the simplest way to achieve this would be to split countries into numerous small nations with less intrastate inequality.

Jel Codes: D31, 132, H80

Keywords: Gini, redistribution, Tiebout

INTRODUCTION

Numerous authors hold income equality as a policy ideal (Clayton and Williams, (2000); Kawachi and Kennedy, (2002)). One of the most common measures of equality is the Gini coefficient, which enables comparisons of income distribution between countries. A Gini of zero signifies perfect equality; a Gini of one signifies that all income is in the pockets of one person. Although the Gini coefficient is a positive concept, most people discuss it for normative reasons and advocate judging policies based on whether they lower a country's Gini coefficient. One of the more common calls is for redistributionist policies in countries such as the U.S., which has a higher Gini coefficient than almost every country in Europe. For example, Buss, Peterson, and Nantz (1989:13-4) write, "Income is distributed less fairly in the United States," and they conclude, "Income must be reallocated to individuals at the lowest rungs of the distribution."

Other authors judge policies such as immigration laws based on whether they lead to lower Gini coefficients. Borjas (1999) favors restrictions on immigration because open borders have the potential to increase inequality in a nation. Note that these arguments are concerned with national Gini coefficients rather than the Gini coefficient for the entire globe. As Tullock (1997) argues, most first world residents do not favor policies that decrease global inequality because it would entail massive redistribution out of their country. Although some authors, including Firebaugh (1999), Goesling (2001), and Milanovic (2002), are concerned with the global Gini, many others are concerned only with the Gini within nations (Glaeser, Scheinkman and Shleifer, 2003).

This paper addresses the scholars concerned with lowering national Gini coefficients. Their policy prescriptions vary, but most tend to argue against classical liberal policies, which are hands off on the issue of income distribution. In this article we address whether a concern for lowering national Gini coefficients justifies implementing redistributionist policies. Whereas authors such as Tullock (1997) question the desirability of equality altogether, we take that goal as given. We argue, however, that even if one accepts low national Gini coefficients as the ideal, redistributionist policies remain unjustified; Gini coefficients can be lowered by other means. We explore the simple point that Gini coefficients are largely determined by political demarcation and they can be lowered by changes in the same.

In countries with many regions or states, such as the US and Brazil, national inequality is determined by interstate inequality in addition to intrastate inequality. Ceteris paribus, when political boundaries are defined across large areas with significant regional differences, the Gini will increase. If lowering national Gini coefficients is the ultimate goal, the simplest way to achieve this would be to split countries into numerous small nations with less intrastate inequality. …

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