[cantastoria]

1. Increase taxes on the rich.

2. ???

3. Better wealth distribution.

I have yet to see a good explanation for what happens in step 2. Raising taxes on the rich is the easy part. How exactly does that money get redistributed? Are we supposed to suddenly trust the federal government to spend its money wisely? What will they spend it on and why?

The papers you cite talk about wealth distribution as if it's obvious how it is going to happen. I'm not so sure that's the case and if the results of the recent stimulus spending in the US are any guide we need to think of some new ideas before considering this course of action.

[ppereira]

2. Actually, with respect to progressive or negative taxation, the redistribution is quite direct. The government takes more from some and distributes it to others through benefits, the EITC, welfare, tax credits, etc. The factor most correlated to income inequality is not total tax revenue and government spending, but the amount of progressivity in the tax scheme.

There are also many market models, only one of which I cited above, that describe the evolution of the income distribution in response to changes in tax schemes. The models are complicated but their basic ideas are not. The redistribution changes market incentives and capitalism does its job to modify the Pareto coefficient and income inequality.