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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. Gene M. Grossman & Elhanan Helpman, 1993. "Endogenous Innovation in the Theory of Growth," NBER Working Papers 4527, National Bureau of Economic Research, Inc.
    2. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
    3. Musgrave, Richard A, 1970. "Pareto Optimal Redistribution: Comment," American Economic Review, American Economic Association, vol. 60(5), pages 991-93, December.
    4. Foley, Duncan K, 1992. "A Contribution to the Theory of Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 1071-88, August.
    5. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
    6. 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.
    7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    8. 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.
    9. 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.
    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.
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