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Inequality-Minimization with a Given Public Budget

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Johannes König, Carsten Schröder

In: Journal of Economic Inequality 16 (2018), 4, S. 607-629


We solve the problem of a social planner who seeks to minimize inequality via transfers with a fixed public budget in a distribution of exogenously given incomes. The appropriate solution method depends on the objective function: If it is convex, it can be solved by an interior-point algorithm. If it is quasiconvex, the bisection method can be used. Using artificial and real-world data, we implement the procedures and show that the optimal transfer scheme need not comply with a transfer scheme that perfectly equalizes incomes at the bottom of the distribution.

Johannes König

Research Associate in the German Socio-Economic Panel study Department

Carsten Schröder

Board of Directors SOEP and Division Head Applied Panel Analysis in the German Socio-Economic Panel study Department

Keywords: Redistribution, Public transfers, Inequality, Optimization methods, Interior-point algorithm, Bisection method

Supplementary material (PDF 314 KB)