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Equity

Equity. Notes used by Ken Henry Address to ACHRA 25 October 2013. Equity - Overview. Distributive justice. Procedural fairness. Consequentialist. Rights, liberties. Rules, procedures, ‘just institutions’. Egalitarians. Libertarians. Rawls et al. Utilitarians.

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Equity

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  1. Equity Notes used by Ken Henry Address to ACHRA 25 October 2013

  2. Equity - Overview Distributive justice Procedural fairness Consequentialist Rights, liberties Rules, procedures, ‘just institutions’ Egalitarians Libertarians Rawls et al Utilitarians

  3. Equity and economic policy PARETO OPTIMALITY An outcome is Pareto optimal if it is impossible to make one person better-off without making at least one other person worse-off. FIRST FUNDAMENTAL THEOREM OF WELFARE ECONOMICS In the absence of externalities and other instances of market failure a competitive general equilibrium is Pareto Optimal. POLICY IMPLICATIONS Address instances of market failure ? Policy interventions should observe the Pareto Principle Foster complete, competitive markets

  4. Dominant economic policy principles PARETO PRINCIPLE Irrespective of the ‘starting point’, policy interventions are justified only if they improve the lot of at least one citizen without making even one person worse-off. COMPENSATION PRINCIPLE Policy interventions that satisfy the Utilitarian Principle should be accompanied by explicit compensation of ‘losers’. UTILITARIAN PRINCIPLE Policy interventions are justified so long as they increase aggregate welfare, whatever their impact on the distribution of economic benefits and burdens.

  5. Alternative policy principles EGALITARIAN PRINCIPLE Policy interventions are justified provided they contribute to a more equal distribution of economic benefits and burdens. DIFFERENCE PRINCIPLE (RAWLS) Policy interventions should generally be motivated by the egalitarian principle, with an exception for those that work to the advantage of the worst-off members of society. PRACTICAL TAX DESIGN PRINCIPLES Policy design has to confront trade-offs among economic efficiency, equity and simplicity.

  6. John Rawls’ Theory of Justice (1) FIRST PRINCIPLE: LIBERTY PRINCIPLE (PRIORITY 1) Each person has an equal right to basic liberty compatible with a similar liberty for (all) others. Political freedoms Freedom of speech and assembly Liberty of conscience Basic liberties Freedom from arbitrary arrest and detention Protective security

  7. John Rawls’ Theory of Justice (2) SECOND PRINCIPLE: EQUALITY PRINCIPLE FAIR EQUALITY OF OPPORTUNITY (PRIORITY 2a) Offices and positions should be open to all, irrespective of social background, ethnicity or sex. This means that all citizens should have reasonable opportunity to acquire the set of capabilities upon which merit is assessed, implying equality of access to education, healthcare etc. DIFFERENCE PRINCIPLE (PRIORITY 2b) Inequality in the distribution of primary goods should be permitted only if it works to the advantage of the worst-off members of society.

  8. AmartyaSen’s parable (from Development as Freedom, 1999) Annuparna (landowner) Dinu (poorest) Accustomed to being poor. Egalitarian case Bishanno (unhappiest) Recently impoverished. Depressed. Utilitarian case Rogini (debilitated) Accustomed to being poor. Debilitated by a chronic, but treatable, ailment. Sen

  9. A policy principle derived from Sen CAPABILITY PRINCIPLE Policy should be directed to nurturing a set of opportunities, and ensuring that individuals have the freedom to access those opportunities and to choose among them, in pursuing lives that they have reason to value. In simpler terms, policy should be directed to ensuring that all citizens have the capability to choose a life they have reason to value.

  10. Amartya Sen’s Development as Freedom Freedom INSTRUMENTAL ROLE: PRINCIPAL MEANS CONSTITUTIVE ROLE: PRIMARY END Development

  11. Constitutive role of freedom (Sen) SUBSTANTIVE FREEDOMS Avoidance of deprivations like starvation and premature mortality ENRICHMENT OF HUMAN LIFE(WELLBEING) Literacy and numeracy ENDS Political participation Freedom of speech

  12. Instrumental role of freedom (Sen) INSTRUMENTAL FREEDOMS Political freedoms Economic facilities Social opportunities DEVELOPMENT MEANS Transparency guarantees Protective security

  13. Poverty as capability deprivation CAPABILITY REQUIREMENTS TO AVOID POVERTY ABSOLUTE POVERTY RELATIVE POVERTY To meet nutritional requirements To live without shame (Adam Smith) To escape avoidable disease To participate in the activities of the community (Peter Townsend) To be sheltered To be clothed To be able to travel To have self-respect (John Rawls) To be educated

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