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Fiscal Transfers and Distributive Conflict in a Simple Endogenous Growth Model with Unemployment

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  • Bonatti Luigi

    (University of Trento,Trento TN, Italy)

Abstract

In the simplified formal treatment proposed in this paper, a decrease in a policy parameter - the ratio of total tax revenues to GDP - can monotonically increase long-term growth rate and may lead to a higher employment level. This notwithstanding, the paper shows that the redistributive implications of such a decrease may induce the wage earners to oppose it. As a consequence, policy-makers reflecting social preferences may undertake redistributive transfers generating persistent unemployment and lowering growth even if commitment technologies allowing them to follow preannounced tax policies were feasible.

Suggested Citation

  • Bonatti Luigi, 2007. "Fiscal Transfers and Distributive Conflict in a Simple Endogenous Growth Model with Unemployment," German Economic Review, De Gruyter, vol. 8(1), pages 41-63, February.
    • Handle: RePEc:bpj:germec:v:8:y:2007:i:1:p:41-63
    DOI: 10.1111/j.1468-0475.2007.00133.x
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