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Fiscal transfers and distributive conflict in a simple endogenous growth model with unemployment

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  • Luigi Bonatti

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    (Department of Economics, University of Bergamo)

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    Abstract

    In the simplified formal treatment proposed in this paper, a decrease in a policy parameter the ratio of total tax revenues to GDP can monotonically increase long-term growth rate and may lead to a higher employment level. This notwithstanding, the paper shows that the redistributive implications of such a decrease may induce the wage earners to oppose it. As a consequence, policy makers reflecting social preferences may undertake redistributive transfers generating persistent unemployment and lowering growth even if commitment technologies allowing them to follow pre-announced tax policies were feasible.

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    File URL: http://aisberg.unibg.it/bitstream/10446/192/1/WPEco01(2004)Bonatti.pdf
    File Function: Version, 08-2004
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    Bibliographic Info

    Paper provided by University of Bergamo, Department of Economics in its series Working Papers with number 0401.

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    Length: 20 pages
    Date of creation: Aug 2004
    Date of revision:
    Handle: RePEc:brg:wpaper:0401

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    Related research

    Keywords: endogenous growth; tax burden; welfare reforms; capital-labor conflict; politico-economic models;

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    References

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    1. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
    2. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
    3. Park, Hyun & Philippopoulos, Apostolis, 2003. "On the dynamics of growth and fiscal policy with redistributive transfers," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 515-538, March.
    4. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    5. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
    6. Schiantarelli, Fabio & Perotti, Roberto & Ardagna, Silvia & Alesina, Alberto, 2002. "Fiscal Policy, Profits, and Investment," Scholarly Articles 4685103, Harvard University Department of Economics.
    7. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March.
    8. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    9. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
    10. Caselli, P. & Pagano, P. & Schivardi, F., 2000. "Investment and Growth in Europe and in the United States in the Nineties," Papers 372, Banca Italia - Servizio di Studi.
    11. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc.
    12. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
    13. Ellen R. McGrattan & James A. Schmitz, Jr., 1998. "Explaining cross-country income differences," Staff Report 250, Federal Reserve Bank of Minneapolis.
    14. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
    15. Kevin J. Lansing, 1998. "Optimal redistributive capital taxation in a neoclassical growth model," Working Papers in Applied Economic Theory 99-01, Federal Reserve Bank of San Francisco.
    16. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-56, March.
    17. repec:hrv:faseco:3353756 is not listed on IDEAS
    18. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
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