income/wealth inequality

why does mobility differ across place

1. heterogeneity: different people live in different places (sorting)

2. neighborhood effects: places have causal effect on upward mobility for a given person

5 correlates of upward mobility

1. segregation

2. income inequality

3. family structure

4. social capital

5. school quality

there is no evidence that

income inequality has caused lower mobility

birth lottery

matters more because the rungs of the ladder are father apart

motivations for government redistribution

1. social welfare maximization

2. altruism

3. welfare as insurance against future income loss

4. avoidance of inequality related externalities

why is the private sector not sufficient

1. there is private charity

2. private provision will be too low relative to social optimum due to the public goods nature and free-rider problem of private charity

PSZ income inequality argument

inequality has increased substantially since the 1960s

AS

inequality has remained relatively constant

costs of redistribution

is inherently inefficient: money must be carried in a “leaky bucket” from the rich to the poor:

1. administrative costs

2. DWL from reduced labor incentives among rich

3. moral hazard from reduced labor incentives among recipients