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Efficient Income Redistribution in a Growing Economy

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Author Info
Gerhard Sorger

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Abstract

We consider a neoclassical growth model in which the society consists of two classes (capitalists and workers). The capitalists consume part of their income and save the rest, whereas the workers are assumed to consume their entire income immediately without saving anything. The governement can redistribute income between the two classes by lump-sum transfers and taxation. We first state the result due to Kaital and Pohjola (1990), which characterizes the set of all first best solutions. We then show that the differential game between the capitalistic class and the government has a Markov-perfect Nash equilibrium which coincides with one of the first best solutions. This equilibrium features a long-run transfer of all wage income from the workers to the capitalists.

On analyse un modèle néoclassique où la population se compose de deux classes (les capitalistes et les ouvriers). Les capitalistes consomment une portion de leur revenu et éprgnent le reste. Les ouvriers consomment tout leur revenu et n'épargnent rien. Le gouvernement peut redistribuer le revenu entre les deux classes au moyen des taxes et des transferts forfaitaires. D'abord on formule un résultat de Kaitala et Pohjola (1990) qui caractérise l'ensemble des solutions optimales de premier rang. Ensuite on démontre que dans le jeu différentiel entre la classe capitaliste et le gouvernement, il existe un équilibre Markov-parfait de Nash qui coïncide avec une solution optimale de premier rang. Cet équilibre implique des transferts à long terme du revenu de la classe ouvrière à la classe capitaliste.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 96s-29.

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Date of creation: 01 Oct 1996
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Handle: RePEc:cir:cirwor:96s-29

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Related research
Keywords: Income redistribution Neoclassical growth model Differential game Markov perfect Nash equilibrium Redistribution du revenu modèle néoclassique de la croissance jeu différentiel équilibre Markov-parfait de Nash

Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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  1. Kaitala, Veijo & Pohjola, Matti, 1990. "Economic Development and Agreeable Redistribution in Capitalism: Efficient Game Equilibria in a Two-Class Neoclassical Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 421-38, May. [Downloadable!] (restricted)
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