WHAT IS Robin Hood Effect
Robin Hood effect is an economic occurrence in which the less well-off gain more economic stability at the expense of the better-off. The Robin Hood effect gets its name from the folkloric outlaw Robin Hood, who, according to legend, stole from the rich to give to the poor. A reverse Robin Hood effect occurs when the better-off gain at the expense of the less well-off.
BREAKING DOWN Robin Hood Effect
Robin Hood effect refers to a phenomenon most commonly used in discussions of income inequality. In a Robin Hood effect, income is redistributed so that economic inequality is reduced. For example, a government that collects higher taxes from the rich and lower or no taxes from the poor, and then uses that tax revenue to provide services for the poor, creates a Robin Hood effect.
A Robin Hood effect can be caused from a number of difference economic and fiscal policies, not all of which are specifically aimed at reducing inequality. Examples include the graduated scale for personal income tax, in which those with higher earnings pay a higher percentage tax compared to lower income earners. Another example of a Robin Hood effect is the imposition of higher road tax for bigger engine automobiles.
Objectives of Income Redistribution
At its core, the Robin Hood effect refers to the redistribution of income and wealth to rectify inequality. This concept often surfaces in politics as lawmakers debate how best to enact economic policy for the public good.
The objectives of income redistribution are to increase economic stability and opportunity for the less wealthy members of society, and therefore often include funding for public services. This relates to the Robin Hood effect because public services are funded by tax dollars, so those who support redistributing income argue the need to increase taxes for the wealthier members of society to best support public programs serving the less well-off members of society.
The premise for the need to redistribute wealth and income derives from the concept of distributive justice, which asserts that money and resources ought to be distributed in a way that is socially just. Another argument in support of income redistribution is that a larger middle class benefits the overall economy by increasing purchasing power, and providing equal opportunities for individuals to reach a better standard of living. Some proponents of the Robin Hood effect argue that capitalism creates an unequal distribution of wealth that should be rectified for the benefit of everyone.