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Endogenous Distribution, Politics and Growth

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Author Info
Satya Das
Chetan Ghate

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Abstract

This paper generalizes the analysis of distributive conflict, politics, and growth developed by by Alesina-Rodrik (1994). We construct a heterogenous-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 optimal 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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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 310.

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Length: 34 p.
Date of creation: 2002
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Handle: RePEc:diw:diwwpp:dp310

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Related research
Keywords: Median Voter; Endogenous Growth; Wealth Distribution; Distributive Conflict; Redistributive Policy.;

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Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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