Answer to Question #126196 in Macroeconomics for Boshungmebe

Question

What are the most important economic effects - good and bad - of forced redistribution? How should this inform government policy?

Answer 1

Incentives are what drive well-functioning capitalist economies; when everyone earns the same income, efforts to be productive or to make profitable investments will reduce and the operation of the market economy will slow down.

Forced redistribution policies generate less future growth than those policies that expand the economic opportunities of poor people—but they reduce poverty immediately.

They also reduce social tensions and may thus free growth constraints in the case of excessive inequality.

Government policy

The government should use the transfer payment programs such as Subsidies and Vouchers funded through general taxation but benefit the poor or influential special interest groups and corporations.