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Income Inequality, Taxation, and Growth

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  • Maria Kula

    ()

  • Daniel Millimet

Abstract

Several recent papers addressing the role of income distribution in the growth process have focused on the role income inequality plays in the political process. Inequality is linked to pressure for high, redistributionary tax rates, which lead to low investment and therefore growth. Empirically, the correlation between high inequality and low growth has been robust. However, the intermediate step linking inequality to high taxes has not been empirically supported, and the link between taxes and growth has been found to be the opposite of that suggested by theory: an empirically robust relationship has been found between high taxes and growth. This paper presents a simple model which reconciles the intuitively appealing taxation approach to economic growth with these seemingly contradictory empirical findings.

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Bibliographic Info

Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 38 (2010)
Issue (Month): 4 (December)
Pages: 417-428

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Handle: RePEc:kap:atlecj:v:38:y:2010:i:4:p:417-428

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Keywords: Income inequality; Fiscal policy; Growth; D30; E62; H30; O40;

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Cited by:
  1. Lambert, Peter J. & Millimet, Daniel L. & Slottje, Daniel, 2003. "Inequality aversion and the natural rate of subjective inequality," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1061-1090, May.

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