Abstract
The authors discuss the measurement and interpretation problems with Browning's 1993 analysis of the marginal cost of redistribution (MCR) through a linear income tax. They derive a general expression for the social MCR and show that Browning's measure inflates the MCR because (a) he ignores the income effects of tax changes and income transfers and (b) he defines the ratio of gains to losses in an arbitrary fashion. The authors argue that his conclusion that the MCR from general income redistribution programs is almost certain to be high is misleading because (a) there are other ways of redistributing income that may have lower cost and (b) the social gains from redistribution are also high.
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