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Redistributive Tax and Growth in a Model with Discrete Occupation choice

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  • Bandyopadhyay, Debasis
  • Basu, Parantap

Abstract

An optimal redistributive tax-subsidy formula is derived for a growth model where inequality is endogenously driven by an adult's choice of occupation between work and management. The human capital or knowledge is the only engine of growth and there is externality associated with human capital B la Lucas (1988) and Romer (1990). How much available knowledge would be exploited in the economy depends on the proportion of innovators who are called managers in our model. A redistributive tax reform directly impacts this proportion of managers by influencing the occupational choice. A growth maximizing redistributive scheme involves an educational subsidy to the innovators financed by taxing workers. Such an optimal educational subsidy is, however, path dependent. An economy with excessively high proportion of managers warrants lesser educational subsidy.

Suggested Citation

  • Bandyopadhyay, Debasis & Basu, Parantap, 1999. "Redistributive Tax and Growth in a Model with Discrete Occupation choice," Working Papers 207, Department of Economics, The University of Auckland.
    • Handle: RePEc:auc:wpaper:207
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    File URL: http://hdl.handle.net/2292/207
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    Cited by:

    1. Bhattacharyya, Chandril & Gupta, Manash Ranjan, 2020. "Union, Efficiency of Labour and Endogenous Growth," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 61(2), pages 170-202, December.
    2. Mauricio Armellini & Parantap Basu, 2010. "Altruism, Education Subsidy and Growth," EERI Research Paper Series EERI_RP_2010_21, Economics and Econometrics Research Institute (EERI), Brussels.
    3. Bandyopadhyay, Debasis & Basu, Parantap, 1999. "The Growth-Inequality Relationship in A Model with Discrete Occupational Choice and Redistributive Tax," Working Papers 213, Department of Economics, The University of Auckland.
    4. Basu, Parantap & Guariglia, Alessandra, 2007. "Foreign Direct Investment, inequality, and growth," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 824-839, December.
    5. Debasis Bandyopadhyay, 2004. "Why haven't economic reforms increased productivity growth in New Zealand?," New Zealand Economic Papers, Taylor & Francis Journals, vol. 38(2), pages 219-240.
    6. Debasis Bandyopadhyay & Parantap Basu, 2005. "What drives the cross‐country growth and inequality correlation?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(4), pages 1272-1297, November.

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    Keywords

    Economics;

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