Investor's wiki

Robin Hood Effect

Robin Hood Effect

What Is the Robin Hood Effect?

Robin Hood effect is the point at which the less wealthy gain economically to the detriment of the better-off. The Robin Hood effect gets its name from the English folkloric prohibit Robin Hood, who, as indicated by legend, took from the rich to provide for the poor. A reverse Robin Hood effect happens when the better-off gain to the detriment of the less wealthy.

The Robin Hood effect ought not be mistaken for the Robinhood effect, which is the increased number, significance, and consideration given to small retail investors utilizing low-section hindrance trading applications like the Robinhood platform.

Understanding the Robin Hood Effect

The Robin Hood effect is a phenomenon most generally utilized in conversations of income inequality. In a Robin Hood effect, income is redistributed so economic inequality is diminished. For instance, a government that gathers higher taxes from the rich and lower or no taxes from the poor, and afterward involves that tax revenue to offer types of assistance for the poor, makes a Robin Hood effect.

A Robin Hood effect can be brought about by market-based peculiarities or government economic and fiscal policies, not which are all intentionally pointed toward diminishing inequality. No matter what the reason, practically any change in an economy's business as usual can bring about the redistribution of income; when that redistribution is supportive of lower-income individuals, that is a Robin Hood effect. In terms of economic efficiency, a Robin Hood effect by definition is never Pareto efficient since, even however it makes lower-income individuals better off, it generally makes at any rate some higher-income individuals more regrettable off.

Government tax policy is the clearest mechanism for the Robin Hood effect. Models incorporate the graduated personal income tax rates, in which those with higher earnings pay a higher percentage tax compared to bring down income earners. One more illustration of a Robin Hood effect is the inconvenience of a higher road tax for greater engine automobiles; higher-income people who can drive larger, more costly cars can be expected to pay higher rates.

Normal economic activity and changing market conditions can likewise create Robin Hood outcomes. For instance, the construction of a high-thickness affordable housing complex next door to a large manor could make the new lower-income inhabitants better off, while forcing costs on the higher-income occupants of the chateau through increased noise and congestion. One more model could be the formation of labor unions that increase the bargaining power of workers, benefiting them to the detriment of their employers.

Objectives of Income Redistribution

At its core, the Robin Hood effect alludes to the redistribution of income and wealth, frequently to amend inequality. This concept frequently surfaces in politics as administrators banter how best to sanction economic policy for the public good.

The objectives of income redistribution are to increase economic stability and opportunity for the less wealthy citizenry, and accordingly frequently incorporate funding for public services. This connects with the Robin Hood effect since public services are funded by tax dollars, so the individuals who support reallocating income contend the need to increase taxes for the wealthier citizenry to best support public programs serving the less wealthy citizenry.

The reason for the need to reallocate wealth and income gets from the concept of distributive justice, which declares that money and resources should be distributed in a manner that is socially just. One more contention in support of income redistribution is that a larger middle class benefits the overall economy by expanding purchasing power, and giving equivalent opportunities to people to arrive at a better standard of living. A few defenders of the Robin Hood effect contend that capitalism makes an inconsistent distribution of wealth that ought to be redressed for the benefit of everybody.

The Robin Hood Effect and Macroeconomic Policy

In Keynesian economics, the preferred method to direct economic cycles is fiscal policy: leading deficit spending during downturns and running government budget surpluses during economic developments. During the two downturns and developments, this endorsed fiscal policy can frequently have a Robin Hood effect.

Since consumers' Marginal Propensity to Consume will in general be higher at lower incomes, increased government spending and tax relief directed toward lower-income consumers can be expected to have a greater impact in supporting sluggish aggregate demand during downturns. So according to a Keynesian point of view, it's a good idea to run a fiscal policy that likewise has a Robin Hood effect during downturns.

Then again, expanding taxes to control "irrational exuberance" in investment and keep away from an overheated financial sector during economic extensions will be best on the off chance that it targets higher-income individuals on the grounds that the Marginal Propensity to Invest will in general be more grounded at higher incomes. The combined effect of government spending and tax relief directed toward lower-income individuals during downturns and higher taxes on investments by individuals with higher incomes during economic developments can make an enormous, vast Robin Hood effect.

Features

  • The Robin Hood effect is the redistribution of wealth from the rich to the poor.
  • Due to differences in spending and investment at various incomes, fiscal policy can have a Robin Hood effect as a result of chasing after macroeconomic stability.
  • The Robin Hood effect can be brought about by a large assortment of government intercessions or normal economic activity.
  • It ought not be mistaken for the Robinhood effect, which thely affects markets of mobile trading applications and platforms.