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Redistributive policy, inequality and growth

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  • Grüner, Hans Peter

Abstract

Does redistribution increase inequality? Is inequality harmfiil for growth? Both questions have recently been addressed in a number of single-tax models. In this paper, I examine the relationship between policy, growth and inequality when income and wealth can be taxed at different rates. In the model, parents accumulate human and physical capital in order to increase the quality of their children. Inequality arises because the learning ability of children is stochastic. Redistributive labor income taxation has a negative impact on short- and long-run growth and inequality while capital taxation increases growth without reducing inequality. I calculate a structure-induced equilibrium of the political process by means of a stochastic Simulation of the model. In the short run initial income-inequality can stimulate growth, while initial inequality of the endowment with human capital is harmfiil for growth. In the long run the economies converge to the same politico-economic equilibrium.

Suggested Citation

  • Grüner, Hans Peter, 1994. "Redistributive policy, inequality and growth," Discussion Papers, Series II 240, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  • Handle: RePEc:zbw:kondp2:240
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    References listed on IDEAS

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    1. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    2. James B. Davies & Peter J. Kuhn, 1991. "A Dynamic Model of Redistribution, Inheritance, and Inequality," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 324-344, May.
    3. Gruner, Hans Peter & Heer, Burkhard, 1994. "Taxation of Income and Wealth in a Model of Endogenous Growth," Public Finance = Finances publiques, , vol. 49(3), pages 358-372.
    4. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-1189, December.
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    Cited by:

    1. Grüner, Hans Peter, 1995. "Political redistribution: The role of delegated lobbying and wage bargaining," Discussion Papers, Series II 272, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".

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    More about this item

    Keywords

    Income distribution; endogenous growth; inheritance taxation; tax-policy;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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