The Efficiency of the Legal System versus the Income Tax in Redistributing Income

Should legal rules be chosen only on the basis of their efficiency or also on the basis of their distributional effects? This article demonstrates that redistribution accomplished through legal rules is systematically less efficient than redistribution accomplished through the income tax system -- even though the latter distorts incentives to work. In particular. a regime with an inefficient legal rule can be replaced by a regime with an efficient legal rule and a modified income tax system designed so that every person is made better off.