When incentives to earn income are distorted by income redistribution programs:

Question

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When incentives to earn income are distorted by income redistribution programs, all of the above can occur. Total income in an economy can fall, total aggregate utility in society can fall, and losses can exceed potential gains from greater equality of income. This is because income redistribution programs can discourage work effort, entrepreneurship, and investment, which can lead to a reduction in productivity, innovation, and economic growth. As a result, even though income redistribution programs may aim to reduce poverty and inequality, they may end up undermining the overall well-being of the society they intend to help.

When Incentives to Earn Income Are Distorted by Income Redistribution