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Inequality, politics and economic growth

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  • Chakrabarty, Debajyoti

Abstract

The paper studies the relationship between inequality and economic growth. This is done in a two sector model of endogenous growth with agents characterized by heterogeneity of factor endowments. The private sector consists of a large number of competitive ¯rms who produce the only ¯nal good in the economy. This good is both consumable as well as accumulable. The government is seen to produce a productive factor interpreted as infrastructure. Infrastructure is both nonrival and accumulable. Infrastructural services °ow into the production of infrastructural stocks as well as the ¯nal good. Capital used for infrastructural production is ¯nanced by the government by taxing capital income. The choice of the growth rate is determined by the tax rate on capital income. We study the choice of the economy's growth rate under a median voter democracy. The results show that inequality of the distribution of capital does not hamper growth. --

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Bibliographic Info

Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 28-2002.

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Date of creation: 2002
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Handle: RePEc:zbw:zeiwps:b282002

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Related research

Keywords: Endogenous growth; Infrastructure; Nonrival input; Welfare; Political equilibrium;

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  1. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  2. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  3. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 323-350 National Bureau of Economic Research, Inc.
  4. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  5. Bertola, Giuseppe, 1991. "Factor Shares and Savings In Endogenous Growth," CEPR Discussion Papers 576, C.E.P.R. Discussion Papers.
  6. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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