CIRJE-F-18. Ihori, Toshihiro, "An Economic Analysis of Public Transfers", September 1998.

This paper develops simple models of public transfers. The sources of income inequality are differences in ability and in luck. The government employs a redistribution policy due to altruistic motives in the case of ability differences. We consider the case there the government reoptimizes income inequality is differences in luck, the economy creates a mutual insurance or provides public goods due to risk sharing motives.

We derive a paradoxical result that a more able individual would not enjoy higher welfare than a less able individual. We also investigate how public transfers react to increases in income level and income inequality.