Inequality, politics and economic growth
AbstractThe 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 InfoPaper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 28-2002.
Date of creation: 2002
Date of revision:
Endogenous growth; Infrastructure; Nonrival input; Welfare; Political equilibrium;
Other versions of this item:
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
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