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Reexamination of Economic Growth, Tax Policy, and Distributive Politics

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  • Yong Bao
  • Jang-Ting Guo

Abstract

The paper examines the relationship between economic growth, tax policy, and distribution of capital and labor ownership in a one-sector political-economy model of endogenous growth with productive government spending financed by a proportional tax on capital income. The analysis shows that inequality in wealth and income can be positively or negatively related to the optimal tax rate. In either environment, higher inequality leads to a lower after-tax return to capital, thereby reducing the economy's growth rate. Copyright Blackwell Publishing Ltd 2004.

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  • Yong Bao & Jang-Ting Guo, 2004. "Reexamination of Economic Growth, Tax Policy, and Distributive Politics," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 474-482, August.
  • Handle: RePEc:bla:rdevec:v:8:y:2004:i:3:p:474-482
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    Cited by:

    1. Christophe Ehrhart, 2009. "The effects of inequality on growth: a survey of the theoretical and empirical literature," Working Papers 107, ECINEQ, Society for the Study of Economic Inequality.

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