Why the Legal System Is Less Efficient than the Income Tax in Redistributing Income

IN economic analysis of law, normative judgments about legal rules are usually based on the rules' efficiency, regardless of their effects on the distribution of income. As a consequence, the economic approach is often criticized. Such criticism would be moot if the income tax systemunderstood here to include possible transfer payments to the poor-could be used freely to achieve any desired distribution of income. But income taxes and transfer payments distort incentives to work, limiting the degree to which it is socially desirable to employ the income tax system to redistribute income. The question therefore arises whether legal rules' should be used to take up some of the slack and promote distributional objectives,2 even if at a sacrifice to efficiency. In this article, we develop the argument that redistribution through legal rules offers no advantage over redistribution through the income tax system and typically is less efficient.3 The reason is that using legal