The Equality-Efficiency Trade-Off: An Approach to Measurement and Some Estimates for the U.S. Economy 1

Abstract

In this paper we have delineated a new approach to measuring the(in)equality-efficiency trade-off in an economy. The approach utilizes aggregate historical data, and permits values of the trade-off to be estimated ex post for each policy variable in any chosen bundle, which have been in operation during the period and could have redistributional implications. We do find evidence of a trade-off for several policy variables. It is not by any means clear that the more sophisticated and informationally demanding micro-based approaches to evaluating the trade-off, which economists have devised, can be as revealing.