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Endogenous Distribution, Politics, and Growth

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  • Satya P. DAS

    (Indian Statistical Institute - Delhi Centre)

  • Chetan CHATE

    (The Colorado College, Colorado Springs)

Abstract

This paper generalizes the analysis of distributive conflict, politics, and growth developed by Alesina-Rodrick (1994). We construct a heteregenous-agent framework in which both growth and the distribution of wealth are endogenous. Due to adjustments in the distribution of wealth, the composition of factor ownership across households equalizes in the long run. This implies that the optiomal tax rate is the same for all households and equals the growth maximizing tax rate. Hence, there is no distributive conflict in the long run. When the model is augmented with a non-political redistributive policy, the model predicts that long run growth exhibits a negative monotonic relationship with respect to this policy, i.e., a redistributive policy that leads to a more equitable wealth distribution unambiguously reduces growth in the long run.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2001019.

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Length: 19
Date of creation: 01 Jul 2001
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Handle: RePEc:ctl:louvir:2001019

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Keywords: Median voter; Endogenous growth; Wealth distribution; Distribtuive conflict; Redistributive policy;

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