Private and Pareto Efficient Public Transfers.

Private transfers are a market mechanism that changes the inequality in the distribution of income. Should the government increase or reduce the size of Pareto efficient public transfers after observing an increase in inter vivos private transfers that reduces (increases) inequality in the distribution of income? In this paper we provide an answer to this question. Our analysis identifies conditions in which private transfers change income inequality and crowd out government's transfers in a targeted redistributive program, but increase the size of public transfers in a broad base redistributive program. [ABSTRACT FROM AUTHOR]