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Endogenous distribution and equilibrium growth: a note

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  • Chetan Ghate

Abstract

Does distributive conflict diminish during the course of economic development? This article outlines a model in which distribution, the tax rate and growth evolve endogenously over time. When voting occurs over a tax on capital, we show that the growth rate is maximized at the political equilibrium in the long run. When voting occurs over a general income tax, we show that the growth rate is maximized at the political equilibrium in both the short and long run. These results suggest that the transitional dynamics of growth models with redistributive politics lead to growth‐maximizing outcomes, as distributive conflict diminishes in the course of development. This implies that the democratic process leads to greater consensus over policy choices, with a perfect convergence of interest across individuals with respect to the tax rate.

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  • Chetan Ghate, 2005. "Endogenous distribution and equilibrium growth: a note," Bulletin of Economic Research, Wiley Blackwell, vol. 57(2), pages 171-183, April.
    • Handle: RePEc:bla:buecrs:v:57:y:2005:i:2:p:171-183
    DOI: 10.1111/j.0307-3378.2005.00219.x
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    References listed on IDEAS

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    Cited by:

    1. Chetan Ghate, 2007. "Voting, Wealth Heterogeneity, and Endogenous Labor Supply," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(4), pages 477-497, December.

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