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Fiscal Transfers and Distributive Conflict in a Simple Endogenous Growth Model with Unemployment

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  • Luigi Bonatti

Abstract

In the simplified formal treatment proposed in this paper, a decrease in a policy parameter - the ratio of total tax revenues to GDP - can monotonically increase long-term growth rate and may lead to a higher employment level. This notwithstanding, the paper shows that the redistributive implications of such a decrease may induce the wage earners to oppose it. As a consequence, policy-makers reflecting social preferences may undertake redistributive transfers generating persistent unemployment and lowering growth even if commitment technologies allowing them to follow preannounced tax policies were feasible. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2007.

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  • Luigi Bonatti, 2007. "Fiscal Transfers and Distributive Conflict in a Simple Endogenous Growth Model with Unemployment," German Economic Review, Verein für Socialpolitik, vol. 8, pages 41-63, February.
    • Handle: RePEc:bla:germec:v:8:y:2007:i::p:41-63
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