The Efficiency versus Equity Trade-off: Observations from survey data

Author Name MORIKAWA Masayuki  (Senior Fellow)
Creation Date/NO. July 2008 08-J-036
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This paper sets out observations from economists and the general public concerning preferences for efficiency and equity, and their attitude toward the costs and benefits of government services.

The Japanese public has a relatively strong orientation toward equality, and people do not mind sacrificing part of their own income growth in order to reduce inequality provided some degree of income growth is anticipated. There are many who consider it desirable to enhance various kinds of public services, including social security, even if it means bearing a greater burden. This attitude is particularly prominent among elderly people. On the other hand, economists generally support income disparities around their current levels. They believe that expanding income redistribution to correct disparities, and also "big government," would have a relatively large negative impact on economic growth. However, consensus is split among economists, whose positions on specific issues are affected by both their professional judgment as experts and their personal values as individuals.

With regard to income redistribution policies through the social security and tax systems, there are many cases of trade-offs between reducing income inequality and the efficiency of resource allocation or economic growth. In such cases it is ultimately up to the people to decide how much weight to allocate and what type of measures to implement. When there are multiple policy objectives, it is important to quantitatively estimate the degree of trade-offs as accurately as possible in order to design the appropriate systems, and to grasp the distribution of people's values.