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Distortionary Taxes and Economic Growth in a Political-Economy Model of a Creative Region

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  • Batabyal, Amitrajeet
  • Beladi, Hamid

Abstract

We analyze a stylized creative region populated by three groups of individuals: the elites who hold political and taxing power, the entrepreneurial creative class that produces a knowledge good, and workers. Political competition between the elites and the creative class results in the elites levying distortionary taxes on the creative class. We provide a rationale for this kind of taxation and then present two results. First, we demonstrate that this kind of distortionary taxation reduces the equilibrium growth rate of the economy of our creative region. Second, we explain why this negative result arises.

Suggested Citation

  • Batabyal, Amitrajeet & Beladi, Hamid, 2024. "Distortionary Taxes and Economic Growth in a Political-Economy Model of a Creative Region," MPRA Paper 123673, University Library of Munich, Germany, revised 07 Feb 2025.
    • Handle: RePEc:pra:mprapa:123673
    as

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    References listed on IDEAS

    as
    1. EUGENE J. McCANN, 2007. "Inequality and Politics in the Creative City‐Region: Questions of Livability and State Strategy," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 31(1), pages 188-196, March.
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    3. Batabyal, Amitrajeet A. & Kourtit, Karima & Nijkamp, Peter, 2025. "Political competition, fiscal policy, and economic performance in techno-creative places," World Development, Elsevier, vol. 188(C).
    4. White, Neil, 2022. "An envelope method for solving continuous-time stochastic models with occasionally binding constraints," Economics Letters, Elsevier, vol. 214(C).
    5. Rowland Atkinson & Hazel Easthope, 2009. "The Consequences of the Creative Class: The Pursuit of Creativity Strategies in Australia's Cities," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(1), pages 64-79, March.
    6. A. Kahuthu, 2006. "Economic Growth and Environmental Degradation in a Global Context," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 8(1), pages 55-68, February.
    7. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Creative Class; Distortionary Tax; Elite; Political Competition;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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