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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 Veselov

    ()
    (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, low redistribution and low barriers for entry (“liberal” order), high redistribution and high barriers for 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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Bibliographic Info

Paper provided by National Research University Higher School of Economics in its series HSE Working papers with number WP BRP 28/EC/2013.

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Length: 29 pages
Date of creation: 2013
Date of revision:
Publication status: Published in WP BRP Series: Economics / EC, April 2013, pages 1-29
Handle: RePEc:hig:wpaper:28/ec/2013

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Keywords: economic systems; political barriers for growth; majority voting; quality-ladders model; wealth inequality; talent inequality; economic growth;

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  1. 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.
  2. Oded Galor & Omer Moav & Dietrich Vollrath, 2009. "Inequality in Landownership, the Emergence of Human-Capital Promoting Institutions, and the Great Divergence," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 143-179.
  3. Krusell, P. & Rios-Rull, J.V., 1993. "Vested Interests in a Positive Theory of Stagnation and Growth," Papers 547, Stockholm - International Economic Studies.
  4. Raquel Fernandez & Richard Rogerson, 1994. "On the political economy of education subsidies," Staff Report 185, Federal Reserve Bank of Minneapolis.
  5. 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.
  6. Howitt, Peter & Mayer-Foulkes, David, 2005. "R&D, Implementation, and Stagnation: A Schumpeterian Theory of Convergence Clubs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 147-77, February.
  7. Alberto Bucci, 2011. "Product-Variety, Population, Competition, and Growth," DEGIT Conference Papers c016_006, DEGIT, Dynamics, Economic Growth, and International Trade.
  8. Gilat Levy, 2005. "The Politics of Public Provision of Education," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1507-1534, November.
  9. Daron Acemoglu, 2008. "Oligarchic Versus Democratic Societies," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 1-44, 03.
  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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