EFFICIENCY, DISTRIBUTION, AND THE ROLE OF GOVERNMENT IN A MARKET ECONOMY.

For years economists have been struggling with the problem of evaluating the benefits of government expenditures. They invariably conclude that the redistributive effects of government taxation and expenditures require the application of some ethical standard, an act which they recognize to be outside the realm of economic analysis. Economic analysis can be used, however, to demonstrate the implications of adopting any ethic. This paper assesses the implications of the ethical rule that newly created property should be distributed according to the marginal productivity of factors. The conclusion is reached that wherever market imperfections are found, government should act to correct the imperfections. Such actions may result in transferring income from the rich to the poor to internalize externalities as well as driving all markets to their competitive equilibria. However, all government actions must be evaluated in terms of securing distributive justice rather than in terms of allocational efficiency or national income. Author