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Economic Brief

Jan. 5, 2017

Richmond Fed Economists Question Conventional Wisdom on Wealth Redistribution

Conventional wisdom says that wealth redistribution boosts output by increasing aggregate consumption. But economists at the Richmond Fed suggest in the Bank’s latest Economic Brief that household decisions regarding how much to work may offset decisions regarding how much to consume in determining the effects of wealth redistribution.

The authors conclude that wealth redistribution may have little effect on output and might actually reduce it. They are careful to note, however, that redistribution is not necessarily bad. “Allowing people to retire earlier or enabling secondary earners to drop out of the labor force to, for example, help take care of children or elderly parents, are significant benefits to the recipients of a redistributive program,” they write. “Those benefits might be good reasons in and of themselves to redistribute wealth, even if they have little to do with the more standard rationale and rhetoric surrounding boosting output.”

The Richmond Fed’s Economic Brief series provides web-exclusive essays on current economic issues and trends. Sign up to receive an email notification when a new essay is posted.

As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District—including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia—to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.


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