Public Economics and Inequality: Uncovering Our Social Nature

Abstract

This paper argues that the social nature of humans, absent from the standard economic model, is crucial for understanding our large modern social states and why concerns about inequality are so pervasive. A social solution arises when a situation is resolved at the group level (rather than the individual level) through cooperation and fair distribution of the resulting surplus. In human societies, childcare and education for the young, retirement benefits for the old, health care for the sick, and income support for those in need are resolved at the social level and through the social state in advanced economies. Social situations are pervasive even outside government and play a significant role in the distribution of pretax market incomes.