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Growth, Inequality, and Integration: A Political Economy Analysis

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  • HUBERT KEMPF
  • STÉPHANE ROSSIGNOL

Abstract

The issue of political integration between two countries (more generally two political constituencies) for economic reasons is studied within the context of a simple endogenous growth model with a productive public good financed by taxation. We consider two countries that initially differ in terms of average endowment, size, and inequality. Because taxation affects the distribution of income both within and between countries, we are able to show how integration impacts it over the entire time horizon. The decision to integrate or not is made by the two national median voters. We establish the net gain for any individual in any country derived from integration and offer a simple decomposition of this gain. It is then proven that even though integration generates aggregate gains for both countries through an endogenous growth mechanism related to size, it may be in the interest of either median voter not to vote for integration given the transformation in the inequality schedule it implies. Surprisingly, even the poorer median voter may vote against integration. Turning to the process of union building, we prove that, once it is decided, integration is irreversible. Countries may initially decide against integration yet be willing to reverse this decision in a subsequent period. Copyright 2005 Blackwell Publishing Inc..

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 7 (2005)
Issue (Month): 5 (December)
Pages: 709-739

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Handle: RePEc:bla:jpbect:v:7:y:2005:i:5:p:709-739

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Cited by:
  1. Hubert Kempf & St�Phane Rossignol, 2007. "Is Inequality Harmful For The Environment In A Growing Economy?," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 19(1), pages 53-71, 03.
  2. Kimiko Terai, 2008. "Interregional Disparities in Productivity and the Choice of Fiscal Regime," Working Papers 070813, University of California-Irvine, Department of Economics.
  3. repec:hal:journl:halshs-00117046 is not listed on IDEAS

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