The Law and Economics of Redistribution

Abstract

Should legal rules be used to redistribute income? Or should income taxation be the exclusive means for reducing income inequality? This article reviews the legal scholarship on this question. First, it traces how the most widely cited argument in favor of using taxes exclusively— Kaplow & Shavell's (1994) double-distortion argument—evolved from previous debates about whether legal rules could even be redistributive and whether law and economics should be concerned exclusively with efficiency or with distribution as well. Next, it surveys the responses to the double-distortion argument. These responses appear to have had only limited success in challenging the sturdy reputation of the double-distortion argument. Finally, it highlights new directions in a debate revived by increasing economic inequality.