8.2.2—Equity vs efficiency

Efficiency concerns maximising or avoiding waste of resources; equity concerns the fairness of distribution or opportunity. A policy can improve one without improving the other.

Redistribution may reduce inequality but weaken incentives or create administrative costs; an efficient market outcome may leave people without a socially acceptable share. The size of the trade-off is empirical, not a universal rule.

A progressive tax can finance education that raises opportunity and productivity, potentially improving both equity and efficiency; a badly designed tax may reduce work or investment more than the gain.

“Efficient” does not mean fair, and “equitable” does not automatically mean economically wasteful.