Should Income Inequality Be Praised? Multiple Public Goods Provision, Income Distribution and Social Welfare

Abstract

We investigate how income inequality affects social welfare in the model of voluntary contributions to multiple pure public goods. Itaya et al. (1997) have shown that maximization of social welfare precludes income equality in the model of a single pure public good. In contrast, we show that the result of Itaya et al. may not be valid in the presence of multiple voluntarily supplied public goods; namely, an income equalizing redistribution policy may raise social welfare. We also show that if altruistic preferences is strong enough, inequality-raising redistribution policy does not affect social welfare.