Economic inequality and optimal redistribution: A theoretical and empirical analysis

This research applies the innovative els model to estimate optimal redistribution as implemented through progressive income taxation, a “social safety net” represented by guaranteed minimum consumption, and allocation of total tax revenues between provision of a pure public good and financing guaranteed minimum consumption. In addition to the two traditional primary factors of production provided by the household to the economy (labor l and saving s), the els model adds a third primary factor: capital management effort e. The principal empirical basis for the model consists of estimates of capital wealth distribution and labor income distribution from the 2010 Survey of Consumer Finances. General insights are gained into the overall relationship between economic inequality and optimal redistribution, as well as specific insights into the effect of various economic parameters on this relationship.