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Redistributive Policies and TFP Differences Across Countries

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Author Info
Xueli Tang () (Deakin University)
Debasis Bandyopadhyay () (University of Auckland)
Abstract

Economists point towards cross-country differences in TFP to explain wide differences in income per capita across countries. This paper derives theoretical restrictions for interpreting the data based on a neoclassical, dynamic general equilibrium model in which redistributive policies significantly alters overall productivity as measured by the conventional definition of TFP. The numerical simulations of the model’s outcome highlights that whether or not the crosscountry differences in output per capita can be significantly explained by the TFP differences depends on the sources of TFP differences. If in the sample of countries the TFP differences arise mainly due to institutional and demographic factors then input differences would be more significant than TFP differences in explaining differences in output per capita. If, however, the TFP differences arise mainly from differences in the degree of redistribution then the TFP differences would be more significant than input differences.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2008_22eco.pdf
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Publisher Info
Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2008_22.

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Length: 36 pages
Date of creation: 12 Nov 2008
Date of revision:
Handle: RePEc:dkn:econwp:eco_2008_22

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Related research
Keywords: heterogeneous agents; edogenous TFP; neighborhood externality; progressive redistribution; macro gains versus micro losses;

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References listed on IDEAS
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    Other versions:
  3. Scott L. Baier & Gerald P. Dwyer, Jr. & Robert Tamura, 2002. "How important are capital and total factor productivity for economic growth?," Working Paper 2002-2a, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  4. Shekhar Aiyar & Carl-Johan Dalgaard, 2004. "Total Factor Productivity Revisited: A Dual Approach to Development Accounting," EPRU Working Paper Series 04-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
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  6. KOCH, Wilfried, 2006. "Total Factor Productivity equation and development accounting: New evidence," LEG - Document de travail - Economie 2006-04, LEG, Laboratoire d'Economie et de Gestion, CNRS UMR 5118, Université de Bourgogne. [Downloadable!]
  7. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-51, August.
    Other versions:
  8. Roland Benabou, 2002. "Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?," Econometrica, Econometric Society, vol. 70(2), pages 481-517, March. [Downloadable!] (restricted)
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  9. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc. [Downloadable!]
  10. Charles Steindel & Kevin Stiroh, 2001. "Productivity: what is it and why do we care about it?," Staff Reports 122, Federal Reserve Bank of New York. [Downloadable!]
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  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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