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

  • Luigi Bonatti
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    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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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0475.2007.00133.x
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    Article provided by Verein für Socialpolitik in its journal German Economic Review.

    Volume (Year): 8 (2007)
    Issue (Month): (02)
    Pages: 41-63

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    Handle: RePEc:bla:germec:v:8:y:2007:i::p:41-63
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    1. Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "The Survival of the Welfare State," Seminar Papers 704, Stockholm University, Institute for International Economic Studies.
    2. Garcia-Penalosa, Cecilia & Aghion, Philippe & Caroli, Eve, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Economics Papers from University Paris Dauphine 123456789/10091, Paris Dauphine University.
    3. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
    4. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc.
    5. Lansing, Kevin J., 1999. "Optimal redistributive capital taxation in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 73(3), pages 423-453, September.
    6. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
    7. Park, Hyun & Philippopoulos, Apostolis, 2003. "On the dynamics of growth and fiscal policy with redistributive transfers," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 515-538, March.
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