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Political party negotiations, income distribution, and endogenous growth

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  • Chang, Roberto

Abstract

This paper examines the determination of the rate of growth in an economy in which two political parties, each representing a different social class, negotiate the magnitude and allocation of taxes. Taxes may increase growth if they finance public services but reduce growth when used to redistribute income between classes. The different social classes have different preferences about growth and redistribution. The resulting conflict is resolved through the tax negotiations between the political parties. I use the model to obtain empirical predictions and policy lessons about the relationship between economic growth and income inequality. The model is consistent with the observation that differences in growth rates across countries are negatively related to income inequality. However, government policy cannot simultaneously increase growth and reduce inequality.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 41 (1998)
Issue (Month): 2 (April)
Pages: 227-255

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Handle: RePEc:eee:moneco:v:41:y:1998:i:2:p:227-255

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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Citations

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Cited by:
  1. Ugo Panizza, 1999. "Income Inequality and Economic Growth: Evidence from the American Data," IDB Publications 6877, Inter-American Development Bank.
  2. Theo Eicher & Stephen Turnovsky & Maria Carme Riera i Prunera, 2002. "Tax reforms and inequality: theoretical and empirical implications," Working Papers in Economics 82, Universitat de Barcelona. Espai de Recerca en Economia.
  3. Ugo Panizza, 1999. "Desigualdad del ingreso y crecimiento económico: elementos de juicio de datos de USA," Research Department Publications 4179, Inter-American Development Bank, Research Department.
  4. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
  5. Bingqin Li & David Piachaud, 2004. "Poverty and Inequality and Social Policy in China," CASE Papers 087, Centre for Analysis of Social Exclusion, LSE.
  6. Andrés Rodríguez-Pose & Vassilis Tselios, 2010. "Inequalities in income and education and regional economic growth in western Europe," The Annals of Regional Science, Springer, vol. 44(2), pages 349-375, April.
  7. Fabrizio Carmignani, 2001. "Theory and Evidence on the Political Economy of Growth," Working Papers 33, University of Milano-Bicocca, Department of Economics, revised Jan 2001.
  8. Joan Esteban & Debraj Ray, 2006. "Inequality, Lobbying, and Resource Allocation," American Economic Review, American Economic Association, vol. 96(1), pages 257-279, March.
  9. Bingqin Li & David Piachaud, 2004. "Poverty and inequality and social policy in China," LSE Research Online Documents on Economics 6303, London School of Economics and Political Science, LSE Library.
  10. Paul J. Zak, 2002. "Institutions, Property Rights, and Growth," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 55-73.
  11. Paul J. ZAK, 2002. "Institutions, Property Rights and Growth," Discussion Papers (REL - Recherches Economiques de Louvain) 2002014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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