Inequality's Welfare Effect And The Choice Of Redistribution Policy

Globally,the economic inequality is not only exacerbating the statistic indexes such as Gini index Theil and other indicators,but inducing more and more social group incidents which has become an important factor influencing one's social stability and modernization.The worldwide consensus is that inequality itself is the enemy of social welfare,and it affects the potential output by influencing the supply and demand imbalance of a country,by influencing the accumulation of human capital and the R&D,by influencing a country's political environment: the polarization between rich and poor will cause the struggle and plunder between groups as mutinies and revolutions,which will cause great damage to the social productive forces and resources.There are too many studies on income distribution,development,inequality and welfare.Many authors decompose the changes of distribution into inequality and growth,but it seems unreasonable to see the growth of neutral-distribution as reason.First,growth itself is an unequal process(Lewis,1983)and inequality is either not a mere appendage to growth but it may affect growth.Second,the simplification between growth and inequality in the macroscopic dimension omits the exogenous national institutions and policies.Thirdly,most existing indicators of income and inequality are within the framework of Pareto efficiency,but they don't take into account the alternative relationship between growth and inequality.Fourthly,ecept the political economy,most of the studies ignore the gap between the macro phenomina and the micro-foundation.Confined by the Arrow's Impossibility Theorem,the theories do not give too much evaluation on the formation of the policy.One tends to prefer higher income and smoother income.If inequality affects a country's economic growth,especially her smooth growth,redistribution policy has noscapegoats.Moreover,the optimized actions of every national agent could not lead to the social's good.These judgements are the basis of the individual utility function,the logical starting point of the redistribution policy,and the jumping-off point for the evaluation of inequality and redistribution policies.The analyses in this paper are also to go from the micro to the macro,from the representative individual to the multi-agents',from the comparative static to dynamic.Under the unified micro framework of models,the paper qualitatively deduces the income growth effect and the income distribution effect of the inequality and redistribution policies.It also provides a series of numerical simulations as the theoretical references to the selection of the fiscal and taxation policy for redistribution.The third Chapter firstly compares the differences of resource allocation between the level of Nash equilibrium and the level of the Stackelberg equilibrium in the class-devided economy,and discusses the negative effects of unequal initial endowments on the overall efficiency and income disparity.In the fourth chapter,from the theoretical prospective of conflict economics,the paper discusses how the nonproductive conflict caused by inequality will lead to the opportunity loss of productive resources and how to change the income disparity.The fifth chapter returns to the traditional microeconomics and analyzes how the inequality of firms' size affects the prisoner's dilemma in the presence of R&D externality.Further more,instead of the dilemma equilibrium,the paper notes that inequality even leads to the chaotic state in the irrational premise of the firms.In the framework of the previous three chapters,the sixth chapter tries to find which kind of fiscal and taxation policies can achieve more efficient and equal income.In the seventh chapter,based on the conclusion of comparative static model,the multi-agent dynamic simulation model is designed to testify under the above microscopic assumptions what kind of redistribution policies are of stochastic dominance in the individual welfare evolution and collective welfare evolution.This stochastic dominance rule is more dynamic distinguishing from its definition in the field of finance and of the field of welfare.According to this paper,the inequality conditionally hinders the sustainabledevelopment of the economy.In most cases,the efficiency of individual rationality cannot be summed up in general efficiency,and "market failure" is "non-neutral".Under the general assumptions,fairness and efficiency are trading off each other in the short term but they are positively related in the long run.To a certain extent,public capital,public goods,public R&D and other transfer payment policy combination can avoid this alternative relation.The relationship between the growth of individual income and the increase of collective output is not contradictory which affords the redistribution policy an understructure of social choice.