The Tradeoff Between Growth and Redistribution: ELIE in an Overlapping Generations Model
AbstractThe ELIE scheme of Kolm taxes labour capacities instead of labour income in order to circumvent the distortionary effect of taxation on labour supply. Still, Kolm does not study the impact of ELIE on human capital formation and investment. In this paper, we build an overlapping generations (OLG) model with heterogenous agents and endogenous growth driven by investment in human capital. We study the effect of ELIE on education investment and other aggregate economic variables. Calibrating the model to French data, we highlight a tradeoff between growth and redistribution. With a perfect credit market, ELIE is successful in reducing inequalities and poverty, but it is at the expense of lower investment in education and slower growth. In an economy with an imperfect credit market where individuals cannot borrow to educate, the tradeoff between growth and redistribution is not overturned but is less severe. However, it is possible to overturn completely that trade-off simply by changing the base of taxation for the young generation which is equivalent to subsidising education.
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Bibliographic InfoPaper 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 2009011.
Date of creation: 01 Jun 2009
Date of revision:
Education; Growth; Redistribution; Kolm;
Other versions of this item:
- de la CROIX, David & LUBRANO, Michel, 2009. "The tradeoff between growth and redistribution: ELIE in an overlapping generations model," CORE Discussion Papers 2009018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- David De La Croix & Michel Lubrano, 2009. "The Tradeoff Between Growth and Redistribution: ELIE in an Overlapping Generations Model," Working Papers halshs-00382513, HAL.
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-28 (All new papers)
- NEP-DGE-2009-07-28 (Dynamic General Equilibrium)
- NEP-FDG-2009-07-28 (Financial Development & Growth)
- NEP-PUB-2009-07-28 (Public Finance)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Fair labor income tax and human capital accumulation
by Economic Logician in Economic Logic on 2009-09-29 14:30:00
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