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September 23, 2018 

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ALLOCATION EFFECT: The goal of imposing taxes to change the allocation of resources, that is, to discourage the production, consumption, or exchange or one type of good usually in favor of another. This is one of two reasons that governments impose taxes. The other reason is the revenue effect. Because people would rather not pay taxes, taxes create disincentives to produce, consume, and exchange. If society deems that less of a particular good, such as alcohol, pollution, or cigarettes are "bad," then a tax can reduce its production and consumption, and thus change the allocation of resources.

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EQUALITY STANDARD:

An income distribution standard in which income is divided equally among members of society. This is one of three basic income distribution standards that answers the For Whom? question of allocation. The other two are the contributive standard and the needs standard.
The equality standard allocates income equally to everyone. In other words, every person--every man, woman, and child--receives exactly the same income--no more, no less. If, for example, total income earned by 1 million people in the hypothetical nation of Northwest Queoldiolia is $10 billion, then each person receives exactly $10,000 of income--no more, no less.

A Level Playing Field

The primary selling point of the equality standard is that everyone has equal access to the economy's production. It creates an absolutely level playing field for everyone. No one can afford better cars, housing, clothing, or education than anyone else. No one has greater access to opportunities than anyone else.

This point is quite appealing to folks who champion the notion that "all men (women, too) are created equal" and seems philosophically consistent with democracy. Everyone has equal political and economic power.

Suppose, for example that Winston Smythe Kennsington III inherited oodles of wealth from his father Winston Smythe Kennsington II. This gave him the opportunity to attend the finest schools, purchase income generating resources, acquire profitable companies, and generally increase his income and wealth. Alternatively, Pollyanna Pumpernickel was born to poor parents and not only lacked the income needed to attend college, but had to drop out of high school to support her sickly mother, who could not even afford medical insurance. Paula did not have the opportunity to acquire the productive resources that would enhance her income or wealth.

The equality standard would provide Winston and Paula with the same income and thus the same opportunities.

No Incentives for Efficiency

However, a primary problem with the equality standard is that it destroys incentives for people to excel or make use of their natural skills, abilities, and talents. If everyone is guaranteed exactly the same income as everyone else, there is no reason to work harder, produce more, or develop innovations. This is a just the thing that leads to a stagnate, inefficient, unproductive economy. While most economies are likely to find the need to do a little distribution based on the equality standard, taking it to the extreme is bound to be bad.

If, for example, Brace Brickhead earns exactly the same income as an existentialist philosophy professor as the star of an action-packed movie, then he has no reason to allocate his labor resources to the production of highly-valued entertainment rather than less-valued education, even though society places a higher value on action-packed movie production. Society does not get what it wants and everyone suffers from inefficiency and the lack of valued production.

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Recommended Citation:

EQUALITY STANDARD, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: September 23, 2018].


Check Out These Related Terms...

     | distribution standards | contributive standard | needs standard |


Or For A Little Background...

     | economic goals | equity | three questions of allocation | For Whom? | third rule of inequality | incentive | efficiency |


And For Further Study...

     | normative economics | economic systems | mixed economy | socialism | communism | fifth rule of imperfection | four estates | government functions | production possibilities | minimum efficient scale |


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