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Political party negotiations, income distribution, and endogenous growth

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  • Roberto Chang

Abstract

This paper examines the determination of the rate of growth in an economy in which two political parties, each representing a different social class, negotiate the magnitude and allocation of taxes. Taxes may increase growth if they finance public services but reduce growth when used to redistribute income between classes. The different social classes have different preferences about growth and redistribution. The resulting conflict is resolved through the tax negotiations between the political parties. I use the model to obtain empirical predictions and policy lessons about the relationship between economic growth and income inequality. The model is consistent with the observation that differences in growth rates across countries are negatively related to income inequality. However, government policy cannot simultaneously increase growth and reduce inequality.

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File URL: http://www.frbatlanta.org/filelegacydocs/wp953.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 95-3.

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Date of creation: 1995
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Publication status: Published in Journal of Monetary Economics, April 1998
Handle: RePEc:fip:fedawp:95-3

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Keywords: Economic policy ; Income distribution ; Political science;

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  1. Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August.
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Citations

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Cited by:
  1. Bingqin Li & David Piachaud, 2004. "Poverty and inequality and social policy in China," LSE Research Online Documents on Economics 6303, London School of Economics and Political Science, LSE Library.
  2. Ugo Panizza, 1999. "Income Inequality and Economic Growth: Evidence from the American Data," IDB Publications 6877, Inter-American Development Bank.
  3. Rodríguez-Pose, Andrés & Tselios, Vassilis, 2008. "Inequalities in Income and Education and Regional Economic Growth in Western Europe," Papers DYNREG34, Economic and Social Research Institute (ESRI).
  4. Fabrizio Carmignani, 2001. "Theory and Evidence on the Political Economy of Growth," Working Papers 33, University of Milano-Bicocca, Department of Economics, revised Jan 2001.
  5. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
  6. Ugo Panizza, 1999. "Desigualdad del ingreso y crecimiento económico: elementos de juicio de datos de USA," Research Department Publications 4179, Inter-American Development Bank, Research Department.
  7. Bingqin Li & David Piachaud, 2004. "Poverty and Inequality and Social Policy in China," CASE Papers 087, Centre for Analysis of Social Exclusion, LSE.
  8. Theo Eicher & Stephen Turnovsky & Maria Carme Riera i Prunera, 2002. "Tax reforms and inequality: theoretical and empirical implications," Working Papers in Economics 82, Universitat de Barcelona. Espai de Recerca en Economia.
  9. Joan Esteban & Debraj Ray, 2006. "Inequality, Lobbying, and Resource Allocation," American Economic Review, American Economic Association, vol. 96(1), pages 257-279, March.
  10. Paul J. Zak, 2002. "Institutions, Property Rights, and Growth," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 55-73.
  11. Paul J. ZAK, 2002. "Institutions, Property Rights and Growth," Discussion Papers (REL - Recherches Economiques de Louvain) 2002014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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