Robin Hood effect

A Robin Hood effect is an economic occurrence where income is redistributed so that economic inequality is reduced. The effect is named after Robin Hood, who is said to have stolen from the rich to give to the poor.

Causes of a Robin Hood effect

A Robin Hood effect can be caused by a large number of different policies or economic decisions, not all of which are specifically aimed at reducing inequality. This article lists only some of these.

Natural national development

Simon Kuznets argued that one major factor behind levels of economic inequality is the stage of economic development of a country. Kuznets described a curve-like relationship between level of income and inequality, as shown. This theory prescribes that countries with very low levels of development will have relatively equal distributions of wealth. As a country develops, it necessarily acquires more capital, and the owners of this capital will then have more wealth and income, which introduces inequality. However, eventually various possible redistribution mechanisms such as trickle down effects and social welfare programs will lead to a Robin Hood effect, with wealth redistributed to the poor. Therefore, more developed countries move back to lower levels of inequality.

Non-proportional income tax

Many countries, such as the UK, have an income tax system where the first part of a worker's salary is taxed very little (if at all), while those on higher salaries must pay a higher tax rate on earnings over a certain threshold. This is often known as progressive taxation. This has the effect of the better-off population paying a higher proportion of their salary in tax, and effectively subsidising the less-well off, leading to a Robin Hood effect.

Cross-subsidisation of mobile telephony

In many developing countries, mobile communications networks tend to experience a large network externality, which regulators and operators seek to correct by subsiding subscriptions through increased prices for call termination. This then allows the less-well off in that country to gain access to communications services, often for free (on a prepay tariff). The additional cost is then levied on subscribers who make calls to these new subscribers; the call originators tend to be better off. Therefore, despite there being no direct transfer of money, there is a strong Robin Hood effect, with the better off subsidising the less well off.

Examples

* [http://www.lagriffedulion.f2s.com/robinhood.htm A Robin Hood effect caused by affirmative action]
* [http://www.syedkamall.com/newsstory.jsp?id=880 International roaming charges argued to make the rich subsidise the poor]

ee also

* Income redistribution
* Distribution of wealth
* Economic inequality