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Redistribution and the political support of free entry policy in the Schumpeterian model with heterogenous agents

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  • Dmitry A. Veselov

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, National Research University Higher School of Economics - Laboratory of Macroeconomic Analysis)

Abstract

We consider the problem of finding sufficient conditions for political support of liberal, growth-enhancing policy in a quality-ladders model with heterogeneous agents differing in their endowment of wealth and skills. The policy set is two-dimensional: Agents vote for the level of redistribution as well as for the level of entry barriers preventing the creation of more efficient firms. We show that under the majority voting rule there are three possible stable political outcomes: full redistribution and low barriers to entry ("liberal" order), high redistribution and high barriers to entry ("corporatism"). We show that key variables determining the political outcome are the expected gain from technological adoption, the ratio of total profits to total wages, and the skewness of human capital distribution.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00830027.

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Date of creation: May 2013
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Handle: RePEc:hal:cesptp:halshs-00830027

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Keywords: Barriers to entry; majority voting; quality-ladders model; wealth inequality; talent inequality; economic growth;

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  1. Raquel Fernandez & Richard Rogerson, 1994. "On the political economy of education subsidies," Staff Report 185, Federal Reserve Bank of Minneapolis.
  2. Daron Acemoglu, 2008. "Oligarchic Versus Democratic Societies," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 1-44, 03.
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  4. Gilat Levy, 2005. "The Politics of Public Provision of Education," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1507-1534, November.
  5. Oded Galor & Omar Moav & Dietrich Vollrath, 2006. "Inequality in Land Ownership, the Emergence of Human Capital Promoting Institutions, and the Great Divergence," DEGIT Conference Papers c011_001, DEGIT, Dynamics, Economic Growth, and International Trade.
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  7. Cecilia García-Peñalosa & Jean-François Wen, 2008. "Redistribution and entrepreneurship with Schumpeterian growth," Journal of Economic Growth, Springer, vol. 13(1), pages 57-80, March.
  8. Stephen L. Parente & Rui Zhao, 2006. "Slow Development And Special Interests," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 991-1011, 08.
  9. Alberto Bucci, 2011. "Product-Variety, Population, Competition, and Growth," DEGIT Conference Papers c016_006, DEGIT, Dynamics, Economic Growth, and International Trade.
  10. David N. Weil & Oded Galor, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September.
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