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We consider a two-person Cournot game of voluntary contributions to a public good with identical individual preferences, and examine equilibrium aggregate welfare under a separable, symmetric and concave social welfare function. Assuming the public good is pure, Itaya, de Meza and Myles (Econ. Letters, 57: 289-296; 1997) have shown that maximization of social welfare precludes income equality in this setting. We show that their case breaks down when the public good is impure: there exist individual preferences under which maximization of social welfare necessitates exact income equalization. Even if the public good is pure, any given, positive level of income inequality can be shown to be socially excessive by suitably specifying individual preferences. Thus, sans knowledge of individual preferences, one cannot reject the claim that a marginal redistribution from the rich to the poor will improve social welfare, regardless of how small inequality is in the status quo.

Wealthy individuals often voluntarily provide public goods that the poor also consume. Such philanthropy is commonly perceived as legitimizing one’s wealth. Governments routinely exempt the rich from taxation on grounds of their charitable expenditures. We examine the logic of this exemption. We show that, rather than reducing inequality, philanthropy may actually exacerbate absolute inequality, while leaving the change in relative inequality ambiguous. Additionally, philanthropic preferences may increase the effectiveness of policies to redistribute income, instead of weakening them. Consequently, from an egalitarian perspective, the general case for exempting the wealthy from expropriation, on grounds of their public goods contributions, appears dubious.

Wealthy individuals often voluntarily provide public goods that the poor also consume. Such philanthropy is commonly perceived as legitimizing one’s wealth. Governments routinely exempt the rich from taxation on grounds of their charitable expenditures. We examine the logic of this exemption. We show that, rather than reducing inequality, philanthropy may actually exacerbate absolute inequality, while leaving the change in relative inequality ambiguous. Additionally, philanthropic preferences may increase the effectiveness of policies to redistribute income, instead of weakening them. Consequently, from an egalitarian perspective, the general case for exempting the wealthy from expropriation, on grounds of their public goods contributions, appears dubious.

We investigate how vertical unity within a community interacts with horizontal class divisions of an unequal income distribution. Community is conceptualized in terms of a public good to which all those in the community have equal access, but from which outsiders are excluded. We formulate the idea of redistributive tension, or class antagonism, in terms of the costs that poorer individuals would be willing to impose on the rich, to achieve a given gain in personal income. Our conclusion is that the nominal distribution of income could give a misleading picture of tensions in society, both within and across communities. Ideologies of community solidarity may well trump those of class solidarity because of the implicit sharing of community resources brought about by community-specific public goods. Greater economic mobility of particular types may actually exacerbate class tensions instead of attenuating them. We illustrate our theoretical results with a discussion of a number of historical episodes of shifting class tensions and alliances.

The standard theory of anti-poverty targeting assumes individual incomes cannot be observed, but statistical properties of income distribution in broadly defined groups are known. Targeting rules are then derived for the forms of transfers conditioned on group membership of individuals. In this literature the motivating notion of a “group” is purely statistical, even when it is groups such as localities and ethnicities. We model instead a group as a “community”, meaning thereby a collection of individuals who have access to a community-specific public good, from which non-members are excluded. Such differential access constitutes a source of inequality among poor individuals belonging to different communities. We show that this formulation of what constitutes a group changes many of the basic results of the targeting literature. Optimal targeting for poverty alleviation leads to seemingly paradoxical rules, such as targeting transfers to the community that is richer. Total wealth of non-poor members of a community and its distribution both become relevant for specifying optimal targeting rules.