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Redistribution and Growth: Pareto Improvements

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  • Chou, Chien-Fu
  • Talmain, Gabriel
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    Abstract

    This paper analyzes the relationship between income distribution and economic growth. It introduces heterogeneous households who have preferences for leisure into Grossman and Helpman's model of endogenous growth (in which income distribution has no effect on economic growth). Wealth distribution affects the endogenous rate of growth as the labor supply of each individual responds inversely to his permanent income. When the labor Engel curve is concave (convex), unequal wealth distribution decreases (increases) the rate of growth. Pareto-improving-growth-enhancing wealth redistributions are characterized. Copyright 1996 by Kluwer Academic Publishers

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    Article provided by Springer in its journal Journal of Economic Growth.

    Volume (Year): 1 (1996)
    Issue (Month): 4 (December)
    Pages: 505-23

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    Handle: RePEc:kap:jecgro:v:1:y:1996:i:4:p:505-23
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102931

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    1. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
    2. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
    3. Aghion, Philippe & Bolton, Patrick, 1992. "Distribution and growth in models of imperfect capital markets," European Economic Review, Elsevier, vol. 36(2-3), pages 603-611, April.
    4. Gene M. Grossman & Elhanan Helpman, 1994. "Endogenous Innovation in the Theory of Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 23-44, Winter.
    5. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, vol. 59(4), pages 542-57, Part I Se.
    6. K. Hamada, 1967. "On the Optimal Transfer and Income Distribution in a Growing Economy," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 295-299.
    7. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    8. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    9. Duncan K. Foley, 1992. "A Contribution to the Theory of Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 1071-1088.
    10. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
    11. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
    12. Musgrave, Richard A, 1970. "Pareto Optimal Redistribution: Comment," American Economic Review, American Economic Association, vol. 60(5), pages 991-93, December.
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