Edited by Alon Harel and Keith N. Hylton
Chapter 5: Wealth Redistribution and the Social Costs of Crime and Law Enforcement
Avraham D. Tabbach* 1. INTRODUCTION Redistributing wealth from the rich to the poor is an exercise in balancing marginal social costs and benefits. The social benefits derive from the idea that people have decreasing marginal utilities of wealth (poor individuals value the marginal dollar more than do rich individuals) or that the social welfare function exhibits aversion to inequality (individuals in a given society tend to prefer equality). The social costs involved are associated with the administration of the wealth redistribution and the use of distortionary, rather than lump sum, taxes. This chapter argues that redistribution generates additional social benefits or costs of a completely different kind, namely, its impact on the social costs of crime and law enforcement. I show that, in a broad range/set of circumstances, redistribution reduces these costs and (back-of-the-envelope calculations suggest) to a significant extent. This serves as an additional justification for progressive taxation, indicating that the scope of redistribution should be greater than what is usually recommended in the public finance literature. The kernel of the argument put forth here is grounded in the notion that it is generally cheaper to enforce the law on the rich than on the poor, for two cumulative reasons: first, because monetary sanctions are less costly than enforcement efforts in achieving any particular level of deterrence, and, second, because, for obvious reasons, monetary sanctions cannot exceed offenders’ level of wealth. Thus, the greater offenders’ level of wealth, more deterrence can be achieved at no additional cost or the...
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