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: 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.

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.

Yet our tax and welfare systems are largely built to send money toward anyone who looks poor on paper, regardless of their full situation and options. Seen from this angle, it is easier to understand the anger of many taxpayers who are not opposed to redistribution in principle but feel that they end up subsidizing people who are making fewer sacrifices than they are. The person who lives in a cheaper neighbourhood is frustrated at seeing their taxes fund generous housing subsidies in areas they themselves could not afford. The person who works long hours and then spends evenings doing their own chores doesn’t want to see their taxes support unemployed neighbors with more free time who could, in principle, earn money by doing chores for others (especially now that Uber, Fiverr, and similar platforms offer simple gigs available to any able-bodied adult). The person who skipped university and started working early resents seeing their taxes used to subsidise degrees that will likely lead to higher lifetime earnings than they will ever enjoy. The person who sacrificed part of their personal life to achieve financial stability later on is frustrated at seeing their stability chipped away to be given to people with a fuller personal life.

In each of these cases, the frustration is not about helping those genuinely worse off. It is about sending money from people who have made more sacrifices to people who have made fewer.

A more serious notion of poverty would focus less on how much money someone has left at the end of the month and more on two questions. First, what is their overall quality of life across money, lifestyle, and experiences? Second, what meaningful options have they had, now and in the past? Someone who never had real chances to build stability is poor in a much deeper sense than someone who could, if they wished, downshift their lifestyle, upgrade their skills, or take gig-economy jobs (the latter two are trivial in 2025 thanks to the internet), but chose instead to trade financial stability for other comforts, experiences, or freedoms.

Now, I'm not saying we should try to put a number on everything, nor that it would be wise to do so. Instead, I would focus on avoiding the most evident cases in which redistribution would go opposite to quality of life gradients. For example:

• Do not subsidize housing that's in areas whose land value is above, say, the worst twentieth percentile of residential land value. We don't want people living in cheaper areas to subsidize people living in more expensive ones.

• Do not give long-term unemployment subsidies to able-bodied people who could become part of the gig economy.

• Do not ask people without an asset to fund people with that asset (e.g., do not ask people without a degree to pay for the student loans of those with one).

• Minimize any form of tax-rate cliff and similar situations in which a marginally higher gross income doesn't result in a proportional increase in net income after transfers.

If we keep defining poverty only in terms of income and net worth, we will keep mistaking deliberate trades for deprivation and keep drawing redistribution gradients that sometimes run opposite to quality of life gradients.

If you enjoyed this essay, you might also enjoy my recent book, Poverty and Prosperity.