Rethinking Redistribution Gradients

Recent debates focused on how many dollars should count as the poverty line. Here, I want to ask a more fundamental question: Is income the right yardstick for poverty at all?

Low disposable income can mean that someone is genuinely deprived, but it can also mean that someone has deliberately traded away savings or income for other things that matter to them:ShareCopy a nicer place to live, more free time, a less stressful job, better education, richer experiences. If we only look at income and savings, we treat both situations as the same and end up designing tax and welfare systems that sometimes take money from people with harder lives and give it to people whose lives are already better overall.

Think of two families with similar incomes. The first lives in an inland city, in a modest flat in a cheap neighbourhood, and keeps housing and childcare costs low by relying partly on grandparents. They manage to save a bit each year. The second family used to live in similar conditions, but moved to a seaside town with a milder climate and a better lifestyle. There, housing is more expensive, and they need to pay full price for childcare, so they end up with little or no savings at the end of the month. The second family looks poorer on paper. However, that’s not poverty, but a deliberate choice to live in a better location in exchange for less financial surplus. Arguably, the second family has a better quality of life, and if so, transferring money from the first to the second family would be unfair.

Or consider work. One person takes a well-paid job with long hours, high stress, and a long commute. Another chooses a lower-paid role with shorter hours, more flexibility, and fewer responsibilities. At year-end, the first has more money. But the second has more free time, better sleep, and perhaps better health. Both make sense as choices, but if we treat only income as relevant, the second is classed as poorer, even though their quality of life is perhaps higher. And if so, it would be unfair to transfer money from the former to the latter.

In both cases, money does not capture the full picture. Free time, location, health, experiences, fun, and flexibility are also assets. People constantly trade money for these other forms of wealth. If our metrics ignore those trades, we will mislabel some people as poor because they have low disposable income, even though they are wealthier in terms of non-financial assets.ShareCopy

To be clear, I do not object to taxes or to redistribution in general. What I object to is the part of redistribution that ignores the differences mentioned above and sends money to people whose overall lives are already better than those who fund them, or to people whose lives are not good but could be much better if they were willing to make the same sacrifices the average taxpayer makes.