Justifying Social Safety Nets

• In Event: Redistribution in Theory and Practice

Abstract

Every developed country provides some form of social safety net. Such programs focus on ameliorating the more extreme consequences of poverty, commonly providing benefits in kind or subject to restriction. The prevailing theory of public finance does not justify such programs. Redistributive tax theory – as developed by Mirrlees and his successors – moves closer but does not fully fit or justify current practice either.

This paper suggests two modifications to existing theory. First, existing theory explores the welfare consequences of redistribution using well-behaved labor-leisure indifference curves. It does so not because the relevant real-world curves are in fact well-behaved, but rather to make the mathematics tractable. In the real world, utility curves for critical necessities are not well-behaved.

Second, existing redistributive theory incorporates a common welfarist presumption: that cash transfers are normatively superior to transfers in kind. Welfare economists generally assume that, given cash, rational actors will spend so as to maximize their own welfare. Unfortunately, in the context of social safety nets, neither voters nor legislators are generally persuaded by this argument; the presumptive superiority of cash is plausible primarily to welfare economists – again, at least in part because it makes the mathematics more tractable.

If we are willing to abandon the use of well-behaved curves and the presumptive superiority of cash, however, existing social safety nets become relatively easy to fit and justify within a welfarist frame.

(This paper was accepted for presentation in 2021. Unfortunately, I lost my computer on my way to the conference and was unable to present.)

Author

• Theodore Seto, LMU Loyola Law School