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 serves the Fifth Federal Reserve District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia. As part of the nation's central bank, we're one of 12 regional Reserve Banks that work together with the Federal Reserve's Board of Governors to strengthen the economy and our communities. We manage the nation's money supply to keep inflation low and help the economy grow. We also supervise and regulate financial institutions to help safeguard our nation's financial system and protect the integrity and efficiency of our payments system.